Forward Industries Inc.
Annual Report 2011

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KFORWARD INDUSTRIES INC - FORDFiled: December 15, 2011 (period: September 30, 2011)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One)[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended September 30, 2011[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number: 0-6669FORWARD INDUSTRIES, INC.(Exact name of registrant as specified in its charter) New York13-1950672(State or other jurisdiction of(I.R.S. Employer Identification No.)incorporation or organization) 3110 Main Street, Suite 400, Santa Monica, CA 90405(Address of principal executive offices, including zip code)(954) 419-9544(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:NoneSecurities registered pursuant to Section 12(g) of the Act:Common Stock, $0.01 par value per shareIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.[ ] Yes [ X ] NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.[ ] Yes [ X ] NoIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. [ X ] Yes [ ] NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required tobe submitted and posted pursuant to Rue 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). [ X ] Yes [ ] NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form10-K. [X]Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act).[ ] Large accelerated filer [ ] Non-accelerated filer (Do not check if a smaller reporting company) [ ] Accelerated filer [X] Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] NoThe aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equitywas last sold, as of the last business day of the Registrant’s most recently completed second fiscal quarter was: $22,912,322.As of December 1, 2011, 8,087,886 shares of the Registrant’s common stock were outstanding.Documents Incorporated by ReferenceThe registrant intends to file, not later than January 28, 2012, a definitive proxy statement pursuant to Regulation 14A, promulgated under the SecuritiesExchange Act of 1934, as amended, to be used in connection with the registrant’s annual meeting of stockholders. The information required in response to PartSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.III (Items 10-14) of this Annual Report on Form 10-K is hereby incorporated by reference to such proxy statement. 1Forward Industries, Inc.Table of Contents PART IPage No.Item 1.Business.......................................................................................................................................................4 Item 1A.Risk Factors..................................................................................................................................................10 Item 1B.Unresolved Staff Comments......................................................................................................................14 Item 2.Properties......................................................................................................................................................14 Item 3.Legal Proceedings.......................................................................................................................................15 Item 4.Reserved ......................................................................................................................................................16 PART II Item 5.Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities....................................................................................................................................................... 16 Item 6.Selected Financial Data...............................................................................................................................17 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.........17 Item 7A.Quantitative and Qualitative Disclosures About Market Risk...............................................................24 Item 8.Financial Statements and Supplementary Data.........................................................................................24 Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........24 Item 9A.Controls and Procedures..............................................................................................................................24 Item 9B.Other Information...........................................................................................................................................26 PART III Item 10.Directors, Executive Officers and Corporate Governance........................................................................26 Item 11.Executive Compensation................................................................................................................................26 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters26 Item 13.Certain Relationships and Related Transactions, and Director Independence.....................................26 Item 14.Principal Accountant Fees and Services.....................................................................................................26 PART IV Item 15.Exhibits and Financial Statement Schedules...............................................................................................27 Signatures.........................................................................................................................................................51 2Note Regarding Use of Certain TermsIn this Annual Report on Form 10-K, unless the context otherwise requires, the following terms have the meanings assigned to them as set forth below:Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. "we", "our", and the "Company" refers to Forward Industries, Inc., a New York corporation, together with its consolidated subsidiaries; “Forward” or “Forward Industries” refers to Forward Industries, Inc.; “common stock” refers to the common stock, $.01 par value per share, of Forward Industries, Inc.; "Forward US" refers to Forward Industries’ wholly owned subsidiary Forward Industries (IN), Inc., an Indiana corporation (formerly Koszegi Industries,Inc.);“Forward HK” refers to Forward Industries’ wholly owned subsidiary Forward Industries HK, Ltd., a limited company of Hong Kong;“Forward Switzerland” refers to Forward Industries’ wholly owned subsidiary Forward Industries (Switzerland) GmbH, a limited company of Switzerland(formerly Forward Innovations GmbH); “Forward APAC” refers to Forward Industries’ wholly owned subsidiary Forward Asia Pacific Limited, a limited company of Hong Kong;“Forward UK” refers to Forward Industries’ wholly owned subsidiary Forward Ind. (UK) Limited, a limited company of England and Wales;“Forward JAFZA” refers to Forward Industries’ registered branch office in the Jebel Ali Free Zone of Dubai, United Arab Emirates (UAE);“GAAP” refers to accounting principles generally accepted in the United States;“Commission” refers to the United States Securities and Exchange Commission;“Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended;“Fiscal 2011” refers to our fiscal year ended September 30, 2011;“Fiscal 2010” refers to our fiscal year ended September 30, 2010; “Europe” refers to the countries included in the European Union;“APAC Region” refers to the Asia Pacific Region, consisting of Australia, New Zealand, Hong Kong, Taiwan, China, South Korea, Japan, Singapore,Malaysia, Thailand, Indonesia, India, the Philippines and Vietnam;“Americas” refers to the geographic area encompassing North, Central, and South America;“OEM” refers to Original Equipment Manufacturer of certain consumer electronic products 3 PART IITEM 1. BUSINESSGeneralThe Company designs, markets, and distributes carry and protective solutions primarily for hand held electronic devices, including soft-sidedcarrying cases, bags, clips, hand straps, protective plates and skins, and other accessories for medical monitoring and diagnostic kits, bar code scanners,GPS and location devices, and cellular telephones. The Company also designs, markets, and distributes carry and protective solutions for other consumerproducts such as laptop computers, MP3 players, firearms, sporting, recreational, and aeronautical products. The Company’s principal customer market isoriginal equipment manufacturers, or “OEMs” (or the contract manufacturing firms of these OEM customers), of these products that either package ourproducts as accessories “in box” together with their product offerings or sell them through their retail distribution channels. OEM customers are located inEurope, the APAC Region, and the Americas.In addition to our existing OEM business, we are currently engaged in building a multi-channel distribution capability to the retail, corporate and on-line markets, as well as expanding our OEM business. In our efforts to develop these channels, we have devoted considerable resources in the hiring ofexperienced sales, design, logistics, and operations professionals. At the same time, we are working with a number of prospective partners on multiple frontsto consummate licensing, distribution or straight purchase arrangements to develop a broadly diversified portfolio of intellectual property in the consumerelectronics accessories market. We seek to identify the Company’s brand with innovation in electronics accessories. In executing the channel-building and product development elements of our strategy, we have incurred significantly increased selling, general, andadministrative expenses as we devote resources to recruit, hire and compensate experienced sales, design, operations, and administrative professionals and todevelop and/or acquire new product offerings. Insofar as most of our new personnel were hired in the second half of Fiscal 2011, the fourth quarter begins,and succeeding quarters will begin, to reflect more fully such investments in resources, while the anticipated benefits of those hires in the form of increasedsales and profit will take significantly longer to be realized, if at all. At the same time, we are investing resources in bringing new products to market,particularly in terms of funding product development activities with prospective partners. We anticipate that the measure of success of our strategy as reflectedin our results of operations will be determined by the strength of new distribution channels, by the speed in which we can bring new products to market, andby the success and acceptance of these products in the marketplace.We do not manufacture any of the products that we design, market, and distribute. We source substantially all products we market and distributefrom independent suppliers in China. Our suppliers custom manufacture our carrying solutions and related products to our order, based on our designs andknow-how, and to our customers’ specifications.Corporate History Forward Industries, Inc. was incorporated in 1961 under the laws of the State of New York as a manufacturer and distributer of advertising specialtyand promotional products. In 1989, we acquired Forward US (then known as Koszegi Industries, Inc.), a manufacturer of soft-sided carrying cases. Thecarrying case business became our predominant business, and in September 1997, we sold the assets relating to the production of advertising specialty andSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.promotional products, ceasing to operate in that segment.In May 1994, we formed Forward HK to facilitate a more nimble and robust carrying case procurement and quality control infrastructure, and toenhance our foreign sourcing capabilities. Thereafter we determined that our domestic production capability was unnecessary, sold the related assets, and wenow source substantially all our products from suppliers in the APAC Region. See "Product Supply".In May 2001, we formed Forward Switzerland to facilitate distribution of aftermarket products under our licenses for cell phone cases with a majorNorth American multinational and to further develop our OEM European business presence. After the expiration of the last of these licenses in March 2009,staff at Forward Switzerland was significantly reduced and in recent years has primarily served our OEM European customers. As part of our strategy todevelop a global retail distribution capability, we are reinvesting in both staff and infrastructure at Forward Switzerland and have established it as our EMEAheadquarters from which we are coordinating our sales and marketing activities throughout the EMEA region. 4 In April 2011, we formed Forward JAFZA to facilitate the development of our business presence and retail distribution channel in the Middle East andIndia region.In July 2011, we formed Forward UK to facilitate a more capable and robust administrative and sales support infrastructure that is dedicated tosupporting the development of our retail distribution strategy in the EMEA region and our EMEA based sales and marketing personnel.ProductsWe design and market to our customers’ order, carry and protective solutions for hand held consumer electronics and other products, including soft-sided carrying cases, bags, clips, hand straps, protective plates, and other accessories made of leather, nylon, vinyl, plastic, PVC and other syntheticmaterials. Our products are used by consumers for protecting and carrying or transporting portable electronic and other products such as blood glucosemonitoring kits, bar code scanners, GPS and location devices, cellular telephones, laptop computers, MP3 players, firearms, sporting and recreationalproducts, and aeronautical products. Our carrying cases are designed to enable these devices to be stowed in a pocket, handbag, briefcase, or backpack,clipped to a belt or shoulder strap, or strapped to an arm, while protecting the consumer electronic or other product from scratches, dust, and mishandling.At the same time, we are working with multiple prospective partners on multiple fronts to consummate licensing, distribution or straight purchasearrangements to develop a broadly diversified portfolio of intellectual property in the consumer electronics accessories market.Diabetic ProductsWe sell carrying cases for blood glucose diagnostic kits directly to OEMs (or their contract manufacturers) of these electronic, monitoring kits made foruse by diabetics. We typically sell these cases at prices ranging from approximately $0.50 to $3.00 per unit. Unit volumes are sold predominantly at thelower end of this price range. The OEM customer or its contract manufacturer packages our carry cases “in box” as a custom accessory for the OEM’s bloodglucose testing and monitoring kits, or to a much lesser extent, sells them through their retail distribution channels. The kits typically include a small,electronic blood glucose monitor, testing strips, lancets for drawing a drop of blood and our carrying case, customized with the manufacturer’s logo anddesigned to fit and secure the glucose monitor, testing strips, and lancets in separate straps, pouches, and holders. As the kits and technology change, ourcarrying case designs change to accommodate the changes in size, shape and layout of the electronic monitoring device, strips and lancet. Since the end of2007, OEMs have sought to reduce the cost of these cases by simplifying their design.Other Products We also sell carrying and protective solutions to OEMs for a diverse array of other portable electronic and other products, including bar codescanners, GPS and location devices, cellular telephones, laptop computers, MP3 players, firearms, sporting and recreational products, and aeronauticalproducts on a made-to-order basis that are customized to fit the products sold by our OEM customers. Our selling prices for these products also vary across abroad range, depending on the size and nature of the product for which we design and sell the carry solution.Product DevelopmentIn our OEM business, the product life cycle in distributing and selling our technology solutions to our OEM customers is as follows. We typicallyreceive requests to submit product designs in connection with a customer’s introduction and rollout to market of a new product that the customer hasdetermined to accessorize and customize with a carry solution. Our OEM customers furnish the desired functionality, size and other basic specifications forthe carrying solutions or other product, including the OEM’s identifying logo imprint on the product. Our in-house design and production staff develops moredetailed product specifications and design options for our customer’s evaluation. We then furnish the customer with product samples. Working with oursuppliers and the customer, samples are modified and refined. Once approved for commercial introduction and order by our customer, we work with oursuppliers to ensure conformity of commercial production to the definitive product samples and specifications. Manufacture and delivery of products inproduction quantities are coordinated with the customer’s manufacturing and shipment schedules so that our carry solution products are available with theOEM’s product (and included “in box”, as the case may be) prior to shipment and sale, or to a lesser extent sold by the OEM through its retail distributionchannels.5 Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We are currently developing new products for our retail channel business. The focus of such product development is on cases and accessories forconsumer electronic devices. In furtherance thereof, on August 30, 2011, we entered into a binding Memorandum of Understanding (“MOU”) with G-FormLLC, a manufacturer of consumer and athletic products incorporating proprietary extreme protective technology. The MOU contemplates that we will launchnew distinctive Forward branded products exclusively utilizing the licensed technology for sale to consumer electronics retailers, original equipmentmanufacturers and other business to business channels other than sport related or lifestyle stores and military or military channels. Prior to launch of our ownproducts, we may sell current G-Form branded electronic protection products in the Company’s territory.Marketing, Distribution, and SalesGeographic Sales DistributionThrough our wholly owned subsidiaries, Forward US and Forward Switzerland, we distribute and sell our products globally. The approximatepercentages of net sales to customers by their geographic location for Fiscal 2011 and 2010 are as follows: Net SalesFiscal Years Ended September 30,Geographic Location:2011 2010APAC.......................................................................................................................46% 43%Americas..................................................................................................................28% 33%Europe......................................................................................................................26% 24%Totals...................................................................................................................100% 100%The importance of the APAC region is attributable to the fact that certain of our key customers outsource product manufacture to contractmanufacturers located in China or elsewhere in Asia. In these instances, we ship product to, and product is packaged “in box” at, such contractmanufacturer’s facility. If payment to us is due from the contract manufacturer, we identify the sale to its geographic location rather than that of the customerfor whom the contract manufacturer is supplying product. The increase in APAC contribution to net sales in Fiscal 2011 compared to Fiscal 2010 was due tothe increase in revenue from our largest diabetic case customer, which uses such a contract manufacturer. See Note 14 to the audited consolidated financialstatements included in Item 8 of this Annual Report. Channels of DistributionWe primarily ship our products directly to our OEM customers or their contract manufacturers, who package our carry solutions products “in box”with the OEM customer’s products. Certain OEMs that became our customers in Fiscal 2011 or 2010 also purchase our carry and protective solutionproducts and offer them for sale as stand-alone accessories to complement their product offerings.In addition to expanding our existing OEM business, we are currently engaged in building a multi-channel distribution capability to the retail, corporateand on-line markets, although there is no assurance that we will be successful.6 Sales by Product LineSales of carry and protective solutions for “Diabetic Products” and for “Other Products”, i.e., all products other than diabetic carry cases for bloodglucose monitor kits, accounted for approximately the following percentages of total net sales in Fiscal 2011 and 2010: Fiscal Year EndedSales:2011 2010Diabetic Products...................................................................................................73% 74%Other Products .......................................................................................................27% 26%Totals...................................................................................................................100% 100% Sales ConcentrationWe have approximately 80 active customers. Of these, three customers, including their affiliates and contract manufacturers, accounted forapproximately 69% of our net sales in Fiscal 2011 and 73% in Fiscal 2010. All three are OEMs of diabetic monitoring kits. These customers package ourcarry and protective solutions “in box” with their branded products, or to a lesser extent, sell them through their retail distribution channels. The approximatepercentages of net sales contributed by each of these three customers for Fiscal 2011 and Fiscal 2010 are as follows: Fiscal Year EndedCustomer:2011 2010Diabetic Customer A............................................................................................37% 39%Diabetic Customer B.............................................................................................16% 19%Diabetic Customer C.............................................................................................16% 15%Totals*................................................................................................................69% 73%* Tables may not total due to rounding.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Sales ForceDuring Fiscal 2011 and 2010, all net sales were made directly by our employees, which are assigned key accounts or defined geographic salesterritories. See “Risk Factors” in Item 1A. of this Annual Report - “Our business could suffer if the services of key sales personnel we rely on were lost tous.”OEM Distribution HubsWe have distribution hub arrangements with three OEM customers. These arrangements obligate us to supply our products to the customer’sdistribution hubs (may be multiple locations) where its products are manufactured and/or warehoused pending sale and where our products are packaged in-box with the OEM customer’s products or, to a much lesser extent, distributed for retail sale. The product quantities we are required to supply to eachdistribution hub are based on the OEM customer’s forecasts. We do not recognize revenue for product shipped to a hub until we have been advised by ourcustomer that product has been withdrawn from the distribution hub to be placed “in box”. Hub arrangements have had the general effect of extendingfinancing for our customers’ inventory build by extending the time between our placement of orders to our suppliers in order to ship and supply the hubs andthe time that we are able to recognize revenue. The corollary effect is an increase in our inventory levels. Credit RiskWe generally sell our OEM products on 60- to 90-day credit terms customary in the industry. Historically, we have not had significant credit problemswith our customers. Our significant OEM customers are large, multi-national companies with good credit histories. None of these customers is or has been indefault to us, and payments from all customers are generally received from them on a timely basis. Three customers, including their affiliates or contractmanufacturers, accounted for approximately 71% of our accounts receivable at September 30, 2011. Three customers, including their affiliates or contractmanufacturers, accounted for approximately 75% of our accounts receivable at September 30, 2010.7 When we ship products to our OEM customer’s designated contract manufacturer and invoice such manufacturer (and not the OEM customer), eventhough our order flows originate with and depend on our relationship with the OEM, our accounts receivable credit risk lies with the contract manufacturer. Our OEM customer does not guarantee the credit of the contract manufacturer to whom the OEM requests us to ship our carrying case products, and suchorder volumes may be significant from time to time. In most cases, these contract manufacturers are themselves major multinational enterprises with goodcredit. See Item 1A of this Annual Report on Form 10-K: “Risk Factors”.Product SupplyManufacturingThe manufacture of custom carrying cases and other carry and protective solutions generally consists of die cutting fabrics and heat sealing, gluing,sewing, and decorating (affixing logos to) the cut-outs by means of silk screening, hot-stamping, embroidering or embossing. The principal materials used inthe manufacture of our products are vinyl, nylon, leather, metal and plastic parts (for clips, buckles, loops, hinges and other hardware), foam padding andcardboard, all of which are obtained according to our specifications from suppliers. We do not believe that any of the component materials or parts used byour suppliers in the manufacture of our products is supply constrained. We believe that there are adequate available alternative sources of supply for all of thematerials used to manufacture, package, and ship our products.SuppliersWe procure substantially all our supply of carrying solutions products from independent suppliers in China. We purchased approximately 90% of ourproducts from four such suppliers in Fiscal 2011 and 88% from four such suppliers in Fiscal 2010. One China supplier accounted for approximately 58%and 67% of our product purchases in Fiscal 2011 and 2010. Depending on the product, we may require several different suppliers to furnish componentparts or pieces. During Fiscal 2011 and currently we are experiencing higher price quotes, which we believe are attributable in significant degree to inflationaryimpacts on the suppliers’ labor and materials costs that they are attempting to pass on to us.We place orders with one or more suppliers at the time we receive firm orders from our OEM customers for a particular product. Accordingly, we donot have minimum supply requirement agreements with our suppliers to guarantee us supply of finished product, nor have we made purchase commitments topurchase minimum amounts from any of our suppliers. However, from time to time, we may order products from our suppliers in anticipation of receiving acustomer order to meet required delivery times. Quality AssuranceTo ensure that product manufacturing by our Chinese suppliers meets our quality assurance standards, products we sell and distribute are inspectedby independent contractors in China, which may be affiliated with one or more of our suppliers. These contractors are subject to the control and supervisionof our quality assurance employees based in Hong Kong.Quality assurance and sourcing-related expenses are reflected in cost of goods sold in our results of operations. In January 2009, our Hong Konginspection facility renewed its ISO 9001:2000 quality certification.LogisticsOnce our products are approved for shipment by our inspection and quality control procedures, the products are typically shipped to our customer’sSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.destination port on ocean-going container vessels. In certain cases, at the customer’s request, we will ship products by air freight or ground transport to acustomer’s location in China or Hong Kong. Most ocean-going shipments bound for the United States are off-loaded at the port of Los Angeles or SanFrancisco, but certain customers arrange for shipments to East coast ports, such as Miami or Philadelphia. European shipments generally are routed viaRotterdam. See “Item 1A. in this Annual Report “Risk Factors—Our shipments of products via container freight to customers in the United States andEurope may become subject to delays or cancellation at port facilities due to work stoppages or slowdowns, damage caused by weather or terrorismand congestion due to inadequacy of equipment and other causes.”8 We ship our products to our customers by common carrier.Insurance We maintain commercial loss and liability, business interruption, and general claims and other insurance customary for our business. We do notmaintain credit insurance for our trade accounts receivable.CompetitionThe business in which we engage is highly competitive in terms of product pricing, design, delivery terms, and customer service. In the production ofcarry and protective solutions for OEM products, we compete with numerous United States and foreign producers and distributors. Some of our competitorsare substantially larger than we are and have greater financial and other resources. We believe that we sustain our competitive position through maintenance ofan effective product design capability, rapid response time to customer requests for proposals and product shipment, competitive pricing, reliable productdelivery, and product quality. We believe that our ability to compete based on product quality assurance considerations is enhanced by the local presence ofour Hong Kong and outsourced Chinese based quality control and shipment capabilities. See Item 1A. in this Annual Report on Form 10-K: “Risk Factors -The carrying solutions business is highly competitive and does not pose significant barriers to entry.”EmployeesAt September 30, 2011, we had 45 full-time employees, of whom two are employed in executive capacities, nine are employed in administrative andclerical capacities, thirteen are employed in sales and sales support, six are employed in design and product development capacities, and fifteen are employedin sourcing, quality control, and warehouse capacities. We consider our employee relations to be satisfactory. None of our employees are covered by acollective bargaining agreement. Of these employees, fifteen have been hired in connection with our potential retail channel business.Since June 2003, we have employed our U.S. employees through a co-employment agreement with ADP Total Source, a Professional EmployerOrganization. The objective of this arrangement is for ADP Total Source to assume many of the legal and administrative responsibilities of human resourcesmanagement, health benefits, workers' compensation, payroll, payroll tax compliance, 401(K) plan administration and unemployment insurance and toperform these functions at lesser expense than if we were to perform them directly.Regulation and Environmental Protection Our business is subject to various regulations in various jurisdictions, including the United States and member states of the European Community,that restrict the use or importation of products manufactured with compounds deemed to be hazardous. We work with our suppliers to ensure compliancewith such regulations. In addition, from time to time one or more customers may require testing of our products to ensure compliance with applicableconsumer safety rules and regulations or the customer’s safety or packaging protocols. Because we do not manufacture the products that we sell anddistribute, compliance with federal, state and local laws and regulations pertaining to the discharge of materials into the environment, or otherwise relating tothe protection of the environment, has not had, and is not anticipated to have, any direct material effect upon our capital expenditures, earnings, or competitiveposition. However, compliance with such laws and regulations on the part of our suppliers may result in increased costs of supply to us, particularly ifdomestic environmental regulation in China becomes more prevalent.We have not been engaged in any environmental litigation or incurred any material costs related to compliance with environmental or other regulations. From time to time we incur chemical and/or safety laboratory testing expense in order to address customer requests regarding our product materials or methodof manufacture or regarding their packaging methods and standards. 9 ITEM 1A. RISK FACTORS Please read the note regarding "Cautionary statement for purposes of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of1995" that appears on pages 17 of this Annual Report on Form 10-K.We previously announced our intention to diversify our business by means of merger, acquisition or other business combination.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our business strategy is to grow our OEM business, expand product offerings and technology solutions, and develop or acquire retail distributioncapability. Consistent with this approach, in December 2010, we announced entry into a letter of intent to acquire Flash Ventures Inc., a distributor ofconsumer electronics peripherals and accessories (“Flash”). In April 2011 we elected to terminate such letter of intent and not make such acquisition.Without completing such a merger or acquisition to acquire a retail channel and product development capability, the time required to implement ourgrowth strategy is likely to increase. This growth strategy represents a significant shift in the Company’s strategy, and there can be no assurance that we willbe successful in our efforts to achieve our goals.Management continues to evaluate potential merger and acquisition targets, and given the right strategic opportunity pursuant to satisfactory terms andconditions, it will pursue a potential merger or acquisition if it is in the best interests of shareholders. There can be no assurance that we will be successful inour efforts to make any acquisition, or that any business that we do acquire or invest in will be profitable or accretive. There can be no assurance as to thetiming of a transaction, or that the market price of our common stock will not decline in response to any such transaction as may be effected or not effected.Our business strategy is to develop and grow our existing business and to expand into retail; to the extent that operating expenses continue totrend significantly higher before we realize higher revenues, our operating results may continue to be adversely and materially affected.We are pursuing a more marketing-driven and product development-driven business model to grow our existing business and expand productofferings. In executing this strategy, we have incurred, and are likely to continue to incur, increased selling, general, and administrative expense as we devoteincreased resources to expanding product sales and development and to establish a retail distribution channel, including resources to recruit and compensateexperienced sales and marketing professionals. Such increased expenses are likely to continue to impact our income statement and reduce cash andequivalents before such efforts result in increased revenues and profit, if at all, which may continue to materially and adversely affect our results ofoperations. We have hired 15 employees in connection with the potential retail channel business and have invested significant resources in bringing newproducts to market, particularly in terms of funding product development. As of September 30, 2011, no new products were available for market and therehad been no sales in connection with the potential retail business. Realization of higher revenues and resulting improvement in our results of operations willdepend on management’s ability to execute successfully on its strategy and business plan, as to which there can be no assurance.The cash investment required to execute our growth strategy is likely to be substantial relative to our cash resources.We have recently invested and expect to continue to invest substantial incremental cash resources to execute our growth strategy to fund (i) operatinglosses reflecting the investment in our sales and distribution capabilities; (ii) investments in product development and other joint venture arrangements; and(iii) investments in working capital required to support new products and channels. While we believe that our existing cash resources are sufficient to supportour growth strategy, there can be no assurances that our growth strategy will be successful or that we will earn a return on these investments. 10 In pursuing strategic partnerships, we may decide to advance funds to third parties for product development.We are aggressively pursuing business relationships with unrelated third parties (via potential joint sales, joint venture, licensing, or otherarrangements) by which we are seeking to expand our sales base, access new customer markets, and/or develop new products to distribute and sell. In certaincases, from time to time, we may deem it in the Company’s best interests to participate in the funding of new product development by extending short-termloans for working capital, product development, or related uses. In general, a significant ancillary purpose of such loans might include enhancing thelikelihood of our securing the business relationship with such third party that we deem advantageous to our business development efforts, as well asacceleration of the development timetable for the product. Such lending may not be on a secured basis. Our business experience does not encompass banklending expertise in the assessment of the creditworthiness of borrowers, and such lending on our part does not represent a core element of our businessexpertise.There is a risk that the funds we loaned or advanced to third parties will not be repaid.On January 5, 2011, the Company entered into a loan agreement with Flash Ventures, Inc., an unrelated entity, to provide a credit facility of up to$1,000,000, due December 1, 2011. Pursuant to the agreement Flash executed an unsecured, unsubordinated term note in favor of the Company, bearinginterest at 11% per annum on any unpaid principal, payable quarterly commencing March 31, 2011. On January 6, 2011 and January 19, 2011, Flashdrew $600,000 and $400,000, respectively, in funds under the note, leaving no further funding available. Flash was late in making the interest payment dueMarch 31, 2011, eventually making payment in full, and made timely payment thereafter. Effective December 1, 2011, the terms of the loan were amendedto, among other things, extend the maturity date to April 1, 2012 and to provide for the loan to be secured. In connection with such amendment Flash made aprincipal payment of $250,000 on December 1, 2011.As of September 30, 2011, we had advanced $500,000, in funds to a prospective joint venture participant in consideration as a prepaid royalty.As with any debt obligation, there is a risk that the borrower will default and we as lender may not receive repayment in full of the funds loaned andinterest thereon. This risk is increased by virtue of the fact that many of these loans were made on an unsecured basis. If this were to occur, it could have aSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.material, adverse effect on our financial condition and reduce the amount of funds available to support our growth initiatives and other capital requirements.Our business remains highly concentrated in our OEM - Diabetic Products line, posing risks to our financial condition and results ofoperations compared to periods when revenue from customers from two principal product lines were more balanced. If our OEM - Diabetic Productsline were to suffer the loss of a principal customer or a material decline in or loss of sales, our business would be materially and adversely affected.Sales of diabetic cases to OEM customers accounted for approximately 73% of net revenues in Fiscal 2011. While OEM sales of “other products”reflect new customer adds and improved revenues in recent years, our business remains characterized by high product line as well as customer concentration. In such circumstances, our financial condition and results of operations are subject to higher risk from the loss of a OEM diabetic case customer or fromchanges in the business practices of OEMs of blood glucose monitors, for example, a decision to reduce or eliminate inclusion of cases in box with theelectronic device or a decision to focus on insulin pumps instead of insulin by injection.Our business is and has been characterized by a high degree of customer concentration. Our three largest customers accounted forapproximately 70% and 73% of net sales in Fiscal 2011 and Fiscal 2010, respectively; the loss of, or material reduction in orders from, any of thesecustomers would materially and adversely affect our results of operations and financial condition.At present the predominant percentage of our sales revenues is concentrated in three large OEM customers for our diabetic blood glucose carry cases,including their affiliates and/or their contract manufacturers. The loss of any of these customers, whether as a result of its purchase of its carry solutionrequirements from another vendor, its decision to manufacture its own carrying cases, its decision to award its orders to one of our competitors, or otherwise,would have a material adverse effect on our financial condition, liquidity and results of operations. 11 If any one or more of our OEM customers elect to reduce or discontinue inclusion of cases “in-box”, our results of operations and financialcondition would be materially and adversely affected.The predominant percentage of our revenues is derived from sales of case accessories to our OEM customers who package our cases “in-box” with theirelectronics. With the global recession and weak recovery, OEMs have sought continuously to reduce expenses. If one or more of our OEM customersgenerally begin to reduce or discontinue the practice of including carry case accessories in-box, we would incur a significant decline in revenues and our resultsof operations and financial condition would be materially and adversely affected.At any time, a significant percentage of our accounts receivable risk may be concentrated in a small number of customers.Three customers accounted for approximately 71% of our accounts receivable at September 30, 2011, and three customers accounted for approximately75% of our accounts receivable at September 30, 2010. The failure to receive or collect such amounts when and as due could have a material adverse effect onour financial condition, liquidity, and results of operations.We continue to encounter pressures from our largest OEM customers to maintain or even roll back prices or to supply lower priced carrysolutions, and expect such pressure to persist. The effects of such price constraints on our business may be exacerbated by inflationary pressures thataffect our costs of supply.During Fiscal 2011 and 2010, we experienced significant pricing pressure from our largest OEM customers to maintain or even reduce the prices wecharge them. When we are unable to extract comparable concessions from our suppliers on prices they charge us, product sales margins erode. In addition to margin compression from customers, from time to time we may encounter increased prices from our Chinese suppliers who are reactingto inflationary increases in materials and labor costs incurred by them. We believe that Fiscal 2011 and the present represent a period of such inflationarypressures. In addition, prices that our Chinese vendors charge to us may reflect appreciation of the Chinese currency against the US dollar, which can bepassed through to us in the form of higher US dollar prices. This in turn will tend to reduce gross profit percentage if we are unable to raise prices. Weanticipate that constraints on our ability to maintain or increase prices to our major customers will continue to exert downward pressure on our gross profitpercentage in the fiscal year ending September 30, 2012. This is particularly the situation with respect to our large diabetic customers for existing as well asnew programs.Our results of operations are subject to the risks of fluctuations in the values of foreign currencies relative to the U.S. Dollar.Our results of operations are expressed in U.S. Dollars. When the U.S. Dollar appreciates or depreciates in value against a currency in which all or asignificant portion of revenues or other accounts receivable are denominated, such as the Euro, our results of operations can be adversely affected or benefited,respectively. For Fiscal 2011, there was not a significant depreciation of the Euro to affect our results of operations. The degree of impact is proportional to theamount of foreign currency expense or revenue, as the case may be, and the fluctuations in exchange rates over the period in which the effect is measured onour financial statements.Future revenues are difficult to predict and are likely to show significant variability as a consequence of customer concentration.Because our revenues are highly concentrated in a few large customers, and because the volumes of these customers' order flows to us can fluctuatemarkedly in a short period of time, our quarterly revenues, and consequently our results of operations, may be highly variable and subject to significantchanges over a relatively short period of time.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our largest OEM customers may keep consumer products with which our carry solutions are packaged "in-box" in active promotion for manymonths, or for a very short period of time, depending on various factors, including sales trends for the product, product development cycles, new productintroductions, and our customers' competitors' product offerings. As demand for the consumer product relating to the in-box program matures and decreases,we may be forced to accept significant price and/or volume reductions in customer orders for our carry solutions, which will adversely affect revenue. 12 These factors tend to lead to a high degree of variability in our quarterly revenue levels. Significant, rapid shifts in our operating results may occur ifand when one or more of these customers increase or decrease the size(s) of, or eliminate, their orders from us by amounts that are material to our business. Our gross margins, and therefore our profitability, vary considerably by sales channel, customer and by product type, and if the revenuecontribution from one or more OEM customers changes materially, relative to total revenues, our gross profit percentage may fluctuate or decline.Our gross profit margins on the products we sell can vary widely depending on the sales channel, product type, customer, order size, and market inwhich the customer's products are sold. Because of the broad variability in price ranges and product types, we anticipate that gross margins, and accordinglytheir impact on operating income or loss, may fluctuate depending on the relative revenue contribution from each customer or product.Product manufacture is often outsourced by our OEM customers to contract manufacturing firms in China and in these cases it is the contractmanufacturer to which we must look for payment.Such firms are performing manufacturing, assembly, and product packaging functions, including the bundling of our product accessories with theOEM customer's product. As a consequence of this business practice, we often sell our carry solution products to the contract manufacturing firm. This isparticularly significant in the case of diabetic product sales to certain customers. In these cases, we invoice the contract manufacturing firm and not the OEMcustomer. Therefore, it is the contract manufacturing firm's credit to which we must look for payment in such cases and not that of our OEM customer. Thismay alter the credit profile of our customer base and may involve significant purchase order volumes. In some, but not all cases, the manufacturing firm isitself a large, multinational entity with significant financial resources.Our dependence on foreign manufacturers creates quality control and other risks to our business. From time to time we may experience certainquality control, on-time delivery, cost, or other issues that may jeopardize customer relationships.Our reliance on foreign suppliers, manufacturers, and other contractors involves significant risks, including risk of product quality issues andreduced control over quality assurance, manufacturing yields and costs, pricing, timely delivery schedules, the potential lack of adequate manufacturingcapacity and availability of product, the lack of capital, and potential misappropriation of our designs.Our shipments of products via container may become subject to delays or cancellation due to work stoppages or slowdowns, piracy, damage toport facilities caused by weather or terrorism, and congestion due to inadequacy of port terminal equipment and other causes.To the extent that there are disruptions or delays in loading container cargo in ports of origin or off-loading cargo at ports of destination as a result oflabor disputes, work-rules related slowdowns, tariff or World Trade Organization-related disputes, piracy, physical damage to port terminal facilities orequipment caused by severe weather or terrorist incidents, congestion in port terminal facilities, inadequate equipment to load, dock and offload containervessels or energy-related tie-ups or otherwise, or for other reasons, product shipments to our customers will be delayed. In any such case, our customer maycancel or change the terms of its purchase order, resulting in a cancellation or delay of payments to us. A closure or partial closure of port facilities or othercauses of delays in the loading, importation, offloading or movement of our products to the shipping destination agreed with our customer could result inincreased expenses, as we try to avoid such delays, delayed shipments or cancelled orders, or all of the above. Depending on the severity of suchconsequences, this may have an adverse effect on our financial condition and results of operations.The OEM carrying solutions business is highly competitive and does not pose significant barriers to entry.There are many competitors in the sale of carry solutions products to OEMs, and competition is intense. Since little or no significant proprietarytechnology is involved in the design, production, or distribution of the types of products we sell, others may enter the business with relative ease and competeagainst us. Such competition may result in the diminution of our market share or the loss of one or more major OEM customers, thereby adversely affectingour net sales, results of operations, and financial condition. Many of our competitors are larger, better capitalized, and more diversified than we are and maybe better able to withstand a downturn in the general economy or in the product areas in which we specialize. These competitors may also have less salesconcentration than we do and be better able to withstand the loss of a key customer or diminution in its orders.13 Our business could suffer if the services of key sales personnel we rely on were lost to us.We are highly dependent on the efforts and services of certain key sales representatives who have account responsibility for, and have longstandingrelationships with one or more of our largest customers. Our business could be materially and adversely affected if we lost the services of any suchindividual. If we lost the services of a key sales representative, we might experience a material reduction in orders from his customers, resulting in a loss ofrevenues, which would materially and adversely affect our results of operations and financial condition.We do not pay dividends on our common stock.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We have not paid any cash dividends on our common stock since 1987. The payment in the future of cash dividends by us, if any, will depend uponour results of operations, short-term and long-term cash availability, working capital, working capital needs, and other factors, as determined by our Board ofDirectors. We do not anticipate that cash dividends will be paid in the foreseeable future. The absence of dividend payments on a common stock might makesuch stock susceptible to greater market price swings.We have in place anti-takeover measures and charter provisions that may prevent a hostile or unwanted effort to acquire Forward.Our Board of Directors is authorized to issue up to 4,000,000 shares of "blank check" preferred stock. Our Board of Directors has the authority,without shareholder approval, to issue such preferred stock in one or more series and to fix the relative rights and preferences thereof including theirredemption, dividend and conversion rights. Our ability to issue the authorized but unissued shares of preferred stock could be used to impede takeovers ofour company. Under certain circumstances, the issuance of the preferred stock could make it more difficult for a third party to gain control of Forward,discourage bids for the common stock at a premium, or otherwise adversely affect the market price of our common stock. In addition, our certificate ofincorporation requires the affirmative vote of two-thirds of the shares outstanding to approve a business combination such as a merger or sale of all orsubstantially all assets. Such provision and blank check preferred stock may discourage attempts to acquire Forward. Applicable laws that imposerestrictions on, or regulate the manner of, a takeover attempt may also have the effect of deterring any such transaction. We are not aware of any attempt toacquire Forward.We maintain cash balances in our bank accounts that exceed the FDIC insurance limitation.We maintain our cash assets at commercial banks in the U.S. in amounts in excess of the Federal Deposit Insurance Corporation insurance limit of$250,000 and in Europe in amounts that may exceed any applicable deposit insurance limits. In the event of a failure at a commercial bank where we maintainour deposits or uninsured losses on money market or other cash equivalents in which we maintain cash balances, we may incur a loss to the extent such lossexceeds the insurance limitation, which could have a material adverse effect upon our financial conditions and our results of operations.ITEM 1B. UNRESOLVED STAFF COMMENTS Not Applicable ITEM 2. PROPERTIESWe sub-leased approximately 5,300 square feet of office and warehouse space at 1801 Green Road, Pompano Beach, Florida on a month-to-month basisfrom a tenant at the same premises. We used this office space as our executive office and our United States sales office until April 2011. This sub-lease expiredon November 30, 2011.In April 2011, the Company relocated its executive offices from Pompano Beach, Florida to offices in Santa Monica, California, which consists ofapproximately 3,400 square feet for which the Company rents at $13,500 per month under lease agreements, which expire in October 2016.In May 2011, the Company, under a license granted by the Jebel Ali Free Zone Authority (JAFZA), established a registered branch office in the Jebel AliFree Zone (JAFZ) of the United Arab Emirates. Under the license, the Company rents approximately 638 square feet of office space at annual rate ofAED118,580 (approximately $32,300 at September 30, 2011) through May 2012. We use this office space to facilitate product sales in the Middle-East andIndia region.14 In July 2011, Forward HK renewed its lease for approximately 4,400 square feet of office space in Kowloon, Hong Kong, which extends throughOctober 2014 at a monthly rate of $15,000. We use this office space as our APAC headquarters from which we coordinate and conduct our Asia-basedsourcing, quality assurance, and logistics activities.In October 2011, the Company, entered into a lease for approximately 1,000 square feet of office space in London, England at $8,000 per month, whichextends through September 2012. We use this office space to perform administrative and sales support (such as accounting, operational, and customer servicefunctions) to our EMEA based sales team.Forward Innovations sub-leases approximately 1,300 square feet of office space in Cham, Switzerland on a month-to-month basis from a tenant at thesame location. We use this office as our EMEA headquarters from which we coordinate our sales and marketing activities throughout the EMEA region.We believe that each of the foregoing leased properties is adequate for the purposes for which it is used. All leases are with independent third parties. Webelieve that the loss of any lease would not have a material adverse effect on our operations as we believe that we could identify and lease comparable facilitiesupon approximately equivalent terms.ITEM 3. LEGAL PROCEEDINGSTargus Group International, Inc., et al. v., Forward Industries, Johnson, et al.On September 19, 2011, the Company, Brett Johnson (our President and Chief Executive Officer), and one of our employees were named in aComplaint filed in Orange County Superior Court by Targus Group International, Inc. and two of its affiliates. The Complaint alleged a claim for breach ofcontract against Mr. Johnson. The Complaint further alleged a "breach of fiduciary duty/duty of loyalty" against the employee, and it asserted claims againstMr. Johnson and the Company for allegedly aiding and abetting that breach. The Complaint also asserted a cause of action against all Defendants for unfaircompetition. An Amended Complaint was filed on October 11, 2011. In addition to the claims asserted the in the original Complaint, the Amended Complaintadded an additional Targus affiliate as a plaintiff and named an additional employee of the Company as a defendant. The Amended Complaint asserted aSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.claim against that employee for breach of contract and for "breach of fiduciary duty/duty of loyalty," and it added new claims against the Company and Mr.Johnson for allegedly inducing the breach of and interfering with that employee's contract and for allegedly aiding and abetting his breach of duty. The claimfor unfair competition in the Amended Complaint relies on these new allegations as well. All of the claims asserted in this action arise out of the decisions offormer employees of one or more of the plaintiffs to accept offers of employment with the Company. The amount of damages sought is not specified. TheCompany believes it has substantial defenses to these claims and intends to vigorously defend the action.Other LitigationFrom time to time, the Company may become a party to other legal actions or proceedings in the ordinary course of its business. As of September 30,2011, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Companybelieves would be material to its business.15 ITEM 4. RESERVEDPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIESMarket for Common StockThe principal market for our common stock is the NASDAQ SmallCap Market. Our common stock is traded under the symbol "FORD". Thefollowing table sets forth the high and low closing bid quotations for our common stock on the NASDAQ SmallCap Market for each quarter in the last twofiscal years. Bid Price Information for Common Stock* Fiscal 2011 Fiscal 2010 High BidLow Bid High BidLow Bid First Quarter$4.06$2.89 $2.15$1.69 Second Quarter$4.10$3.02 $3.20$1.96 Third Quarter$4.59$2.52 $5.60$2.96 Fourth Quarter$3.11$2.01 $4.59$2.90 _______________________________*High and low bid price information as furnished by The NASDAQ Stock Market Inc. On December 1, 2011, the closing bid quotation for our common stock was $1.62Holders of common stock. As of December 1, 2011, there were approximately 115 holders of record of our common stock, excluding approximately 8,720 beneficial holders ofcommon stock whose shares are held in street name.DividendsWe have not paid any cash dividends on our common stock since 1987 and do not plan to pay cash dividends in the foreseeable future. The paymentof dividends in the future, if any, will depend upon our results of operations, as well as our short-term and long-term cash availability, working capital,working capital needs, and other factors, as determined by our Board of Directors. Currently, except as may be provided by applicable laws, there are nocontractual or other restrictions on our ability to pay dividends if we were to decide to declare and pay them.Recent sales of unregistered securitiesDuring Fiscal 2011, we did not sell any shares of common stock, or securities exercisable for or exchangeable into common stock, or any othersecurities that were not registered under the Securities Act of 1933.Securities authorized for issuance under equity compensation plans.For information relating to this topic, see Part III, Item 11 of this Annual Report. “Executive Compensation—Securities Authorized for Issuance underEquity Compensation Plans”, which is incorporated in this Annual Report on Form 10-K by reference to our 2011 Proxy Statement.Purchase of Equity SecuritiesNo repurchase of any shares of our common stock or other equity security was made by or on behalf of the Company during Fiscal 2011.16Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In September 2002 and January 2004, our Board of Directors authorized the repurchase of up to an aggregate of 486,200 shares of our common stock.Under those authorizations, as of September 30, 2011, we have repurchased an aggregate of 172,603 shares at a cost of approximately $0.4 million, leaving abalance of 313,597 shares (approximately 3.9% of the shares outstanding at September 30, 2011) under those authorizations, but none during Fiscal 2011 orFiscal 2010. Separate from the foregoing authorizations, in Fiscal 2010 in connection with exercises of stock options to purchase 50,000 shares in theaggregate of common stock by two non-employee directors and an officer, such persons received, net, an aggregate of 24,030 shares in transactions valuingsuch shares at market on the respective dates of exercise in lieu of payment of the exercise price of such options. Under applicable authority, such transactionsare not deemed to constitute purchases by us of our common stock.ITEM 6. SELECTED FINANCIAL DATANot applicable.ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our audited Consolidated Financial Statements and the notes theretoand other financial information appearing in Item 8 of this Annual Report on Form 10-K. This discussion and analysis compares our consolidatedresults of operations for the Fiscal year ended September 30, 2011 ("Fiscal 2011"), with those for the Fiscal year ended September 30, 2010 ("Fiscal2010"), and is based on or derived from the audited Consolidated Financial Statements included in Item 8 in this Annual Report. All figures in thefollowing discussion are presented on a consolidated basis. All dollar amounts and percentages presented herein have been rounded to approximatevalues.Cautionary statement for purposes of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995The following management’s discussion and analysis includes “forward-looking statements”, as such term is used within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These “forward-looking statements” are not based on historical fact and involve assessments of certain risks,developments, and uncertainties in our business looking to the future. Such forward looking statements can be identified by the use of forward-lookingterminology such as “may”, “will”, “should”, “expect”, “anticipate”, “estimate”, “intend”, “continue”, or “believe”, or the negatives or other variations ofthese terms or comparable terminology. Forward-looking statements may include projections, forecasts, or estimates of future performance and developments. Forward-looking statements contained in this Annual Report are based upon assumptions and assessments that we believe to be reasonable as of the date ofthis Annual Report. Whether those assumptions and assessments will be realized will be determined by future factors, developments, and events, which aredifficult to predict and may be beyond our control. Actual results, factors, developments, and events may differ materially from those we assumed andassessed. Risks, uncertainties, contingencies, and developments, including those discussed in this Management’s Discussion and Analysis of FinancialCondition and Results of Operations and those identified in “Risk Factors” in Item 1A of this Annual Report on Form 10-K, could cause our future operatingresults to differ materially from those set forth in any forward looking statement. There can be no assurance that any such forward looking statement,projection, forecast or estimate contained can be realized or that actual returns, results, or business prospects will not differ materially from those set forth inany forward looking statement.Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims anyobligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflectfuture results, events or developments.Business OverviewTrends and Economic EnvironmentIn executing the channel-building and product development elements of our strategy, during Fiscal 2011 we have incurred, and we intend to continue toincur, significantly increased selling, general, and administrative expenses as we devote resources to recruit, hire and compensate experienced sales, design,operations, and administrative professionals, and to develop and/or acquire new product offerings. Insofar as most of our new personnel were hired in thesecond half of Fiscal 2011, with further investment in personnel planned for the first quarter of Fiscal 2012, the fourth quarter of Fiscal 2011, and succeedingreporting periods will begin to reflect more fully our investments in resources, while the anticipated benefits of such hires in the form of increased sales andprofit will take significantly longer to be realized, if at all. At the same time, we are investing resources in bringing new products to market, particularly interms of funding product development activities with prospective partners. We anticipate that the measure of success of our strategy as reflected in our resultsof operations will be determined by the strength of new distribution channels, by the speed in which we can bring new products to market, and by the successand acceptance of these products in the marketplace. 17 With regard to our OEM business, we have recently been awarded several large programs by two major diabetic customers. We anticipate that theseprograms will begin to contribute meaningfully to revenues beginning in late Fiscal 2012. While these new programs will increase our sales volume, weanticipate that gross margins on certain of these new or prospective programs will be lower than the gross margins seen in the first part of Fiscal 2011. Ourbusiness remains highly concentrated by customer and product type, especially in the diabetic case product line. However, as we indicated in previousreports, we intended to build on the 10% growth in revenue that was contributed by “other products” in Fiscal 2010, and in Fiscal 2011 we have exceeded suchtargets. Accordingly, even as diabetic product sales continue to increase, we believe that we are making progress in diversifying the customer base. Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We continue to operate in a very challenging pricing and gross margin environment with our OEM customers. The global economy continues to faceheadwinds, and our OEM customers remain very price sensitive. As reflected in the “gross profit” discussions below, we are encountering higher costs fromour China-based suppliers due to materials and labor price increases, placing continuing pressure on profit margins. As the expected launch of new andreplacement diabetic programs increasingly replace mature programs, we anticipate that the impact of materials and labor cost increases from our China-basedsuppliers will become more evident in this product line and gross profit generally. Product mix factors may exacerbate this trend. In many cases, we are notable to pass higher costs through to customers, particularly when replacement program products resemble their predecessor or historically similar products forwhich customers have become accustomed to a narrow price range. See “Risk Factors” in Item 1.A of this Annual Report. We are actively looking at alternativesources of supply, as well as other geographic regions to expand and diversify our manufacturing capabilities in order to mitigate this trend.Variability of Revenues and Results of OperationBecause a high percentage of our sales revenues is highly concentrated in a few large customers, and because the volumes of these customers’ orderflows to us are highly variable, with short lead times, our quarterly revenues, and consequently our results of operations, are susceptible to significantvariability over a relatively short period of time. Critical Accounting Policies and EstimatesWe have identified the accounting policies and significant estimation processes below as critical to our business operations and the understanding of ourresults of operations. The discussion below is not intended to be comprehensive. In many cases, the accounting treatment of a particular transaction isspecifically dictated by accounting principles generally accepted in the United States, with no need for management’s judgment of a particular transaction. Inother cases, management is required to exercise judgment in the application of accounting principles with respect to particular transactions. The impact andany associated risks related to these policies on our business operations are discussed throughout this “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” where such policies affect reported and expected financial results. For a detailed discussion of the applications of theseand other accounting policies, refer to Item 8. “Financial Statements and Supplementary Data” in this Annual Report. Our preparation of our consolidatedfinancial statements requires us to make estimates and assumptions that are believed to be reasonable under the circumstances. There can be no assurance thatactual results will not differ from those estimates and such differences could be significant.18 Cash and Cash EquivalentsCash and cash equivalents consist primarily of cash on deposit and highly liquid money market accounts. The Company minimizes its credit riskassociated with cash and cash equivalents by investing in high quality instruments and by periodically evaluating the credit quality of the primary financialinstitution issuers of such instruments. The Company holds cash and cash equivalents at major financial institutions in the United States, the amounts ofwhich may significantly exceed FDIC insured limits, and in Europe. At September 30, 2011, this amount was approximately $10.5 million. Historically, theCompany has not experienced any losses due to such cash concentrations.Accounts ReceivableAccounts receivable consist of unsecured trade accounts with customers or their contract manufacturers. The Company performs periodic creditevaluations of its customers including an evaluation of days outstanding, payment history, recent payment trends, and perceived credit worthiness, andbelieves that adequate allowances for any uncollectible receivables are maintained. Credit terms to the majority of customers are generally net thirty (30) days tonet sixty (60) days; however, the Company typically extends to its largest customers payment terms up to 90 days. The Company has not historicallyexperienced significant credit or collection problems with its OEM customers or their contract manufacturers. None of these customers or their contractmanufacturers is or has been in default to the Company, and payments are generally received from them on a timely basis. Three customers, including theiraffiliates and contract manufacturers, accounted for approximately 71% and 75% of the Company’s accounts receivable at September 30, 2011 and 2010,respectively. At September 30, 2011 and 2010, the allowance for doubtful accounts was approximately $14,000 and $19,000, respectively.Inventory ValuationInventories consist primarily of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or market. Based onmanagement’s estimates, an allowance is made to reduce excess, obsolete, or otherwise un-saleable inventories to net realizable value. The allowance isestablished through charges to cost of goods sold on the Company’s consolidated statements of operations. As reserved inventory is disposed of, the Companycharges off the associated allowance. In determining the adequacy of the allowance, management’s estimates are based upon several factors, includinganalyses of inventory levels, historical loss trends, sales history, and projections of future sales demand. The Company’s estimates of the allowance maychange from time to time based on management’s assessments, and such changes could be material. At September 30, 2011, the Company did not record anallowance for obsolete inventory. At September 30, 2010, the allowances for obsolete inventory was approximately $28,000.Property and EquipmentProperty and equipment consist of furniture, fixtures, and equipment and leasehold improvements and are recorded at cost. Expenditures for majoradditions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property andequipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is includedin the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line methodfor financial statement purposes. The estimated useful life for furniture, fixtures and equipment ranges from three to ten years. Amortization of leaseholdimprovements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. TheCompany recorded approximately $74,000 and $54,000 of depreciation and amortization expense in Fiscal 2011 and 2010, respectively. Depreciation andamortization for production related property and equipment is included as a component of costs of goods sold in the accompanying consolidated statements ofSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.operations. Depreciation and amortization for selling and general and administrative related property and equipment, is included as a component of operatingexpenses in the accompanying consolidated statements of operations.Revenue RecognitionWe generally recognize revenue from product sales to customers when: (1) title and risk of loss are transferred (in general, these conditions occur ateither point of shipment or point of destination, depending on the terms of sale); (2) persuasive evidence of an arrangement exists; (3) we have no continuingobligations to the customer; and (4) collection of the related accounts receivable is reasonably assured.19 Shipping and Handling CostsWe classify shipping and handling costs (including inbound and outbound freight charges, purchasing and receiving costs, inspection costs,warehousing costs, internal transfer costs, and other costs associated with our Hong Kong distribution facility and network) as a component of cost of goodssold in the accompanying consolidated statements of operations. This classification may not be comparable to similar companies within our industry.Income TaxesWe account for its income taxes in accordance with accounting principles generally accepted in the United States of America, which requires, amongother things, recognition of future tax benefits and liabilities measured at enacted rates attributable to temporary differences between financial statement andincome tax bases of assets and liabilities and to net tax operating loss carryforwards to the extent that realization of these benefits is more likely than not. Weperiodically evaluate the realizability of our net deferred tax assets. See Note 8 to the Notes to Consolidated Financial Statements. Our policy is to account forinterest and penalties relating to income taxes, if any, in “income tax expense” in the statement of operations. For the fiscal years presented in the accompanyingconsolidated statements of operations no income tax related interest or penalties were assessed or recorded.Share-Based Payment ExpenseWe recognize share-based equity compensation in our consolidated statements of operations at the grant-date fair value of our stock options and otherequity-based compensation. The determination of grant-date fair value is estimated using an option-pricing model, which includes variables such as theexpected volatility of our share price, the exercise behavior of our employees, interest rates, and dividend yields. These variables are projected based on ourhistorical data, experience, and other factors. Changes in any of these variables could result in material increases to the valuation of options granted in futureperiods and increases in the expense recognized for share-based payments. Refer to Note 7 Share-Based Compensation of this Annual Report.Results of Operations for Fiscal 2011 compared to Fiscal 2010Net lossWe incurred a net loss of $2.9 million in Fiscal 2011 compared to net loss of $1.7 million in Fiscal 2010. The increase in net loss is primarily theresult of higher sales and marketing expenses, as well as higher general and administrative expenses, which were offset, in part, by an increased gross profiton higher sales and “other income” (primarily interest income) in Fiscal 2011, as reflected in the table below: (thousands of dollars) Fiscal2011Fiscal2010Increase (Decrease)Net sales...............................................................................................$22,777$18,9973,780 Gross profit...........................................................................................5,0654,232833Sales and marketing expenses...........................................................(3,391)(2,167)1,224General and administrative expenses................................................(4,688)(3,636)1,052Other income 581048Income taxes56(124)180Net loss*................................................................................................($2,900)($1,686) 1,214* Table may not total due to rounding.Basic and diluted loss per share was ($0.36) for Fiscal 2011, compared to ($0.21) for Fiscal 2010. The increase in loss per share in Fiscal 2011 was due tothe increase in net loss, which was offset, in small part, by the increase in weighted average shares outstanding in Fiscal 2011.20 Net SalesNet sales increased $3.8 million, or 20%, to $22.8 million in Fiscal 2011 from $19.0 million in Fiscal 2010 due to higher sales of diabetic products,which increased $2.5 million, or 18%, and higher sales of “Other Products”, which increased $1.2 million, or 26%. The tables below set forth net sales byproduct line and geographic location of our customers for the periods indicated.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Net Sales for Fiscal 2011 (millions of dollars) APACAmericasEuropeTotal*Diabetic Products..................................................$9.1$2.6$5.0$16.7Other Products.......................................................1.43.81.06.1Totals*..............................................................$10.4$6.4$5.9$22.8 Net Sales for Fiscal 2010 (millions of dollars) APACAmericasEuropeTotal*Diabetic Products..................................................$7.4$3.0$3.8$14.1Other Products.......................................................0.93.20.84.9Totals*.............................................................. $8.2$6.2$4.6$19.0* Tables may not total due to rounding.Diabetic Product SalesWe design to the order of, and sell carrying cases for blood glucose diagnostic kits directly to, OEMs (or their contract manufacturers). The OEMcustomer or its contract manufacturer packages our carry cases “in box” as a custom accessory for the OEM’s blood glucose testing and monitoring kits, or toa lesser extent, sell them through their retail distribution channels.Sales of cases and related accessories for blood glucose monitoring kits increased $2.5 million, or 18%, to $16.7 million in Fiscal 2011 from $14.1million in Fiscal 2010. This increase was due primarily to higher sales to two of our major diabetic customers, as presented in the table below, which sets forthour sales by diabetic customer for the periods indicated.(millions of dollars) Fiscal 2011Fiscal 2010Increase (Decrease)Diabetic Customer A.........................................................................$8.4$7.4$1.0Diabetic Customer B.........................................................................3.73.60.1Diabetic Customer C.........................................................................3.72.80.9All other Diabetic Customers...........................................................0.80.30.5Totals*.........................................................................................$16.7$14.1$2.5* Table may not total due to rounding.Sales of carrying cases for blood glucose monitoring kits represented 73% of our total net sales in Fiscal 2011 compared to 74% of our total net sales inFiscal 2010.Other Product SalesWe design and sell carrying solutions primarily to OEMs for a diverse array of other portable electronic and other products, including bar codescanners, GPS and location devices, cellular telephones, laptop computers, MP3 players, firearms, sporting and recreational products, and aeronauticalproducts.Sales of other products increased $1.2 million, or 26%, to $6.2 million in Fiscal 2011 from $4.9 million in Fiscal 2010. Included in the Fiscal 2011amount is $0.4 million of sales to Flash Ventures, Inc. (refer to Note 3 – Note Receivable in the Notes to Financial Statements), which we consider as non-recurring business. The balance of the increase was primarily driven by higher sales to five existing customers, which totaled $1.5 million in the aggregateand individually accounted for 10% or more of total increase in other products. Smaller increases in several other customer accounts, totaling $0.3 million inthe aggregate, also contributed to the higher sales of “Other Products” in Fiscal 2011. These sales increases were offset, in part, by decreases in sales to severalcustomers, most of which were individually immaterial, except to two customers, which each decreased $0.2 million, respectively.21 Sales of other products represented 27% of our net sales in Fiscal 2011 compared to 26% of net sales in Fiscal 2010.Gross ProfitGross profit increased $0.8 million, or 20%, to $5.1 million in Fiscal 2011 from $4.2 million in Fiscal 2010. The increase resulted primarily from the$3.8 million, or 20%, increase in net sales in Fiscal 2011 and, to a much lesser extent, from decreases from Fiscal 2010, in absolute terms, in tooling,packaging and warehousing costs, as well as the cost of operating our Hong Kong sourcing and quality control functions. In addition, as a percentage of sales,all components of our Cost of Goods Sold, with the exception of our Material Costs, were lower in Fiscal 2011, which improved our gross margin from Fiscal2010. However, the increase in Material Costs, as a percentage of sales, offset the factors that improved our gross margin in Fiscal 2011. As a result, our grossmargin was 22% in both Fiscal 2011 and 2010.The increase in material costs, which as a percentage of sales, increased 2% in Fiscal 2011 was attributable primarily to our “Other Products line,Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.where we experienced lower average margins due partly to changes in product mix, and partly to increased materials, labor, and other production costs fromour Hong Kong based suppliers. These pricing pressures are presently more evident in our Other Products line, where the product life cycles are generallymuch shorter than those included in our Diabetic Products line. We are also experiencing increased costs of materials with regard to our Diabetic Products line,especially in respect of new and replacement programs for diabetic case products, but the impact of pricing pressures on mature programs sales in thisproduct line remained relatively muted in Fiscal 2011. Sales and Marketing ExpensesSales and marketing expenses increased $1.2 million, or 56%, to $3.4 million in Fiscal 2011 from $2.2 million in Fiscal 2010. The significantlyhigher level of expense reflects our focus on growing sales generally, developing our capability to sell into the retail channel, and developing new products(particularly for retail), and the ramp-up of necessary resources applied to achieve these goals, and is primarily due to the following:$0.6 million increase in personnel expense due to: i) the restructuring and growth of our sales force and ii) higher sales commissionsaccrued in respect of the higher sales levels achieved in the Fiscal 2011;$0.3 million increase in travel and entertainment expenses incurred by new sales and sales support personnel added globally duringFiscal 2011 primarily in connection with development of prospective new sales channels;$140 thousand increase in product development and design costs; and$180 thousand increase in the aggregate in occupancy, telecommunication, and general office expenses.In connection with the potential retail channel business we have hired 15 employees. To date, these employees have not generated any revenue.Lesser fluctuations in other components of sales and marketing expenses were immaterial. 22 General and Administrative ExpensesGeneral and administrative expenses increased $1.1 million, or 29%, to $4.7 million in Fiscal 2011 from $3.6 million in Fiscal 2010 due primarily tothe following:$0.6 million increase in personnel expense resulting from: i) hires of additional information technology, operations, and accountingpersonnel during the period; ii) retention bonus to an executive; iii) relocation expense and increased salary expenses associated with therelocation of the Company’s headquarters to California; iv) recruitment and signing fees attributable to new hires; v) increased payrolltaxes and benefits attributable to personnel hires; and vi) associated higher level of share based compensation awards.$160 thousand increase in travel and entertainment expenses attributable primarily to relocation-related travel in connection withidentification and establishment of new office space in California and related personnel relocation travel, as well as travel by executivesassociated with strategic and business development activities.$250 thousand increase in the aggregate in telecommunications costs (resulting from hosting and connectivity charges associated withthe Company’s IT infrastructure, as well as cellular telephone charges) and general office costs (primarily computer expenses andoffice supplies);$160 thousand increase in professional fees including: i) legal, taxation, and accounting consulting fees incurred in connection withthe proposed Flash Ventures transaction, as well as other strategic and business development activities; ii) consulting fees relating tothe Company’s internal control environment; and iii) legal fees resulting from the Targus matter (refer to Note 12).Other Income (Expense)Other income (expense), consisting primarily of interest income on cash and cash equivalent balances and on short term notes receivable (refer to Note 3– Notes Receivable in our Notes to Financial Statements), as well as foreign currency transaction gains and losses, improved to $58 thousand of income inFiscal 2011 from $10 thousand of income in Fiscal 2010. This improvement resulted from a $65 thousand increase in interest income in Fiscal 2011, dueprimarily to the Flash note receivable, and to a lesser extent, interest bearing short-term investments. Liquidity and Capital ResourcesDuring Fiscal 2011, we used $1.8 million of cash in operations compared to a use of $1.7 million in Fiscal 2010. Net cash used in operating activitiesin Fiscal 2011 consisted of net loss of $2.9 million, adjusted by $0.5 million for non-cash items (primarily share based compensation), and offset by netcash provided by working capital items of $0.6 million. As to working capital items, cash provided by operations consisted of an increase in prepaid andother assets (current and long-term) of $0.8 million and a decrease in accrued expenses and other current liabilities of $0.3 million. These changes were offset,in part, by decreases in accounts receivables and inventory of $0.7 million and $20 thousand, respectively, and an increase in accounts payable of $0.5million. The increase in prepaid and other assets (current and long term) is due primarily to advanced royalties paid to a strategic partner (refer to Note 11 –License Agreement – in Notes to Financial Statements), prepaid rents (for the Company’s California headquarters and its JAFZA branch office), prepaidtooling and mold costs in support of firm purchase orders, prepaid telecommunication and IT costs, and insurance premiums. The decrease in accruedexpenses and other current liabilities is primarily due to payments made during the Fiscal 2011 in respect of items accrued as of September 30, 2010: (i) $229thousand in severance payments to a former officer of the Company; (ii) $142 thousand in settlement costs paid to a shareholder (iii) $225 thousand in salescommissions; and (iv) $130 thousand in wages. The decrease in accounts receivable is due to an improvement in our days sales outstanding and timingSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.differences in cash payments received immediately prior to the close of our fiscal year. The increase in accounts payable is due to higher materials purchasesmade in the fourth quarter of Fiscal 2011 compared to the fourth quarter of Fiscal 2010 and are primarily in support of sales orders received in our OEMchannel. During Fiscal 2010, we used $1.7 million of cash in operations consisting of a net loss of $1.7 million, reduced by $0.4 million for non-cash items,and increased by net changes in working capital items of $0.4 million. As to working capital items, uses of cash in operating activities in respect of increasesin accounts receivable, inventories, and prepaid and other current assets were $1.4 million, $0.4 million, and $12 thousand, respectively. These changes wereoffset, in part, by increases in accounts payable and accrued expenses and other current liabilities of $0.6 million and $0.8 million, respectively, and adecrease in other assets of $14 thousand, which provided cash to operating activities. 23 In Fiscal 2011, net investing activities used $1.8 million of cash, primarily in short-term loans of $1.5 million made to prospective strategic partners(refer to Note 3 – Notes Receivable – in Notes to Financial Statements), of which $0.5 million was converted to advanced royalties (refer to Note 11 – LicenseAgreement – in Notes to Financial Statements). In addition, net investing activities consisted of purchases of $0.3 million of property and equipment,primarily computer and telecommunications hardware and software. In Fiscal 2010, investing activities used $9 thousand in purchases of property andequipment. There were no financing activities in Fiscal 2011. In Fiscal 2010, financing activities generated $67 thousand in proceeds from the exercise of stockoptions. At September 30, 2011, our current ratio (current assets divided by current liabilities) was 6.1; our quick ratio (current assets less inventories dividedby current liabilities) was 5.8; and our working capital (current assets less current liabilities) was $18.3 million. As of such date, we had no short or long-term debt outstanding. Our primary source of liquidity is our cash and cash equivalents on hand. The primary demands on our working capital currently are: i) operatinglosses, ii) accounts payable arising in the ordinary course of business, the most significant of which arise when our customers place orders with us and weorder from our suppliers, and iii) development of strategic partnerships. Historically, our sources of liquidity have been adequate to satisfy working capitalrequirements arising in the ordinary course of business. Management’s recently announced business strategy includes (i) increasing the Company’s existingOEM business and (ii) expanding its product offerings and diversifying its distribution by moving into the retail channel. We anticipate that the building outof our product offerings and establishing a retail distribution channel through internal growth and development of strategic partnerships may lengthen theperiod required to increase net sales revenues expected to be generated by the new channel and products. Results of operations for Fiscal 2011 reflect theincrease in operating costs brought to bear to achieve these goals. Accordingly, we anticipate significant uses of cash and capital resources going forward as aresult of one or more of the following developments in future periods: (i) continued operating losses due to the investments incurred in conjunction with ourimplementation of management’s strategy (see “Trends and Economic Environment” above), in particular in increased selling and other personnel expenses; (ii) use of capital in financing strategic partnerships in investing activities; and (iii) investments in working capital required to support new products and saleschannels. We anticipate that our liquidity and financial resources for the next twelve months will be adequate to meet our operating and financialrequirements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKNot applicableITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe consolidated financial statements and notes thereto included in this Annual Report may be found at pages [28 to 45] of this Annual Report on Form10-K.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENoneITEM 9A. CONTROLS AND PROCEDURESOur management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under theExchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Actis recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and proceduresinclude, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files orsubmits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers andprincipal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.24 Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In accordance with Exchange Act Rule 13a-15(b), our management, under the supervision and with the participation of our Principal Executive Officerand Principal Financial Officer, performed an evaluation of the effectiveness of the Company's disclosure controls and procedures as of the end of the periodcovered by this Report (the fourth quarter of the Fiscal year ended September 30, 2011, in the case of this Annual Report on Form 10-K). Based on thatevaluation, the Company's Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures wereeffective, as of the end of the period covered by this Report (the fourth quarter of the Fiscal year ended September, 30, 2011, in the case of this Annual Reporton Form 10-K), to provide reasonable assurance that information required to be disclosed in the Company's reports filed or submitted under the Exchange Actis recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.Management’s Report on Internal Control Over Financial ReportingOur Principal Executive Officer and our Principal Financial Officer are responsible for establishing and maintaining adequate internal control overfinancial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, orunder the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes inaccordance with generally accepted accounting principles and includes those policies and procedures that:pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of ourassets;provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance withauthorizations of management and our directors; andprovide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets thatcould have a material effect on the financial statements.Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systemsdetermined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.Our Principal Executive Officer and our Principal Financial Officer assessed the effectiveness of our internal control over financial reporting as ofSeptember 30, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission (“COSO”) in Internal Control — Integrated Framework.Based on this assessment, our Principal Executive Officer and our Principal Financial Officer believe that, as of September 30, 2011, our internalcontrol over financial reporting is effective based on those criteria.This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control overfinancial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules ofthe Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.25 This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, unless theregistrant specifically states that the report is to be considered “filed” under the Exchange Act or incorporates it by reference into a filing under the SecuritiesAct or the Exchange Act.Changes in Internal ControlOur management, with the participation of our Principal Executive Officer and Principal Financial Officer, performed an evaluation required by Rule13a-15(d) of the Exchange Act as to whether any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)occurred during the last Fiscal quarter of the Fiscal year ended September 30, 2011. Based on that evaluation, our Principal Executive Officer and ourPrincipal Financial Officer concluded that no change occurred in the Company's internal control over financial reporting during the last Fiscal quarter of theFiscal year ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financialreporting.ITEM 9B. OTHER INFORMATIONNonePART III Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this item regarding directors and executive officers is incorporated to this Annual Report on Form 10-K by reference to ourDefinitive Proxy Statement to be filed with the Securities and Exchange Commission not later than January 28, 2012, in connection with our Annual Meetingof Stockholders (the “2011 Proxy Statement”) under the headings “Election of Directors”, “Structure and Practices of the Board of Directors”, and “SecurityOwnership of Certain Beneficial Owners and Management and Related Stockholder Matters;—Section 16(a) Beneficial Ownership Reporting Compliance”. Information regarding executive officers is also incorporated to this Annual Report on Form 10-K by reference to the 2011 Proxy Statement under the caption“Executive Officers.” The information required by this item relating to Corporate Governance, including Code of Ethics, is incorporated to this Annual Reporton Form 10-K by reference to the 2011 Proxy Statement under the heading “Structure and Practices of the Board of Directors.”ITEM 11. EXECUTIVE COMPENSATIONThe information required by this item is incorporated to this Annual Report on Form 10-K by reference to the 2011 Proxy Statement under the heading“Executive Compensation and Related Information.”ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information required by this item is incorporated to this Annual Report on Form 10-K by reference to the 2011 Proxy Statement under the headings“Executive Compensation and Related Information—Securities Authorized for Issuance Under Equity Compensation Plans” and “Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters.”ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this item is incorporated to this Annual Report on Form 10-K by reference to the 2011 Proxy Statement under the headings“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Certain Relationships, Director Independence, andRelated Transactions” and “Structure and Practices of the Board of Directors;—Board of Directors and Director Independence.”ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this item is incorporated to this Annual Report on Form 10-K by reference to the 2011 Proxy Statement under the heading“Matters Relating to Independent Registered Public Accountants;—Principal Accountant Fees and Services.” 26 PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES a. Financial Statements Reports of Independent Registered Public Accounting FirmConsolidated Balance Sheets Consolidated Statements of OperationsConsolidated Statements of Shareholders’ EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial Statements b.Exhibits 3. Articles of Incorporation and By-Laws 3(i)Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3 to the Company's Annual Report onForm 10-K, as filed with the Commission on December 8, 2010). 3(ii)Third Amended and Restated By-Laws of Forward Industries, Inc., as of August 10, 2010 (incorporated by reference to Exhibit3 to the Company's Annual Report on Form 10-K, as filed with the Commission on December 8, 2010). 4.Instruments Defining the Rights of Security Holders 4.1 Shareholder Protection Rights Agreement, dated as of June 9, 2010, by and between Forward Industries, Inc. and AmericanStock Transfer & Trust Company LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s CurrentReport on Form 8-K, as filed with the Commission on June 15, 2010) 4.2Amendment, dated as of August 10, 2010, to Shareholder Protection Rights Agreement, dated as of June 9, 2010, by andbetween Forward Industries, Inc. and American Stock Transfer & Trust Company LLC, as Rights Agent (incorporated byreference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on August 16, 2010),Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.which amendment terminated the Right Agreement 10.Material Contracts 10.1 1996 Stock Incentive Plan of Forward Industries, Inc. (incorporated by reference to Exhibit 4 to the Registration Statement onForm S-8 of the Company, as filed on April 25, 2003). 10.2Forward Industries, Inc. 2007 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 4.1 to the RegistrationStatement on Form S-8 of the Company, Reg. File No. 333-165075, as filed with the Commission on February 25, 2010). 10.3Settlement Agreement, dated as of August 10, 2010, by and among Forward Industries, Inc., LaGrange Capital Partners, L.P.,and certain Affiliates of LaGrange Capital Partners, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s CurrentReport on Form 8-K, as filed with the Commission on August 16, 2010). 10.4 Severance and Release Agreement, dated as of August 10, 2010, by and between Douglas W. Sabra and Forward Industries,Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the Commission onAugust 16, 2010). 10.5Retention Agreement, dated as of August 10, 2010, between Forward Industries, Inc. and James O. McKenna, (incorporated byreference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, as filed with the Commission on August 16, 2010).27 10.6 Amended Employment Agreement, dated as of April 1, 2011, between Forward Industries, Inc. and James O.McKenna, (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q, as filedwith the Commission on May 11, 2011). 10.7Letter Agreement, dated October 31, 2011, between Forward Industries, Inc. and RGJR Capital Partners LLC,(incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, as filed with theCommission on November 7, 2011). 10.8†Memorandum of Understanding, dated August 30, 2011, between Forward Industries, Inc. and G-Form LLC. 21.Subsidiaries of the Registrant 21.1List of Subsidiaries of Forward Industries, Inc. 23.Consent of Independent Registered Public Accounting Firm 23.1Consent of J.H. Cohn LLP 23.2Consent of Kaufman, Rossin & Co., P.A. 31.Certifications Pursuant to Rule 13a-14(a) (Section 302 of Sarbanes-Oxley) 31.1Certification of Brett M. Johnson 31.2Certification of James O. McKenna 32.Certifications Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350 (Section 906 of Sarbanes-Oxley) 32.1Certifications of Brett M. Johnson and James O. McKenna (furnished herewith) † Portions have been omitted pursuant to request for confidential treatment and the omitted portions have been separately filed with the Commission.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 28 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Shareholders of Forward Industries, Inc.We have audited the accompanying consolidated balance sheet of Forward Industries, Inc. as of September 30, 2011 and the related consolidatedstatements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe thatour audit provides a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ForwardIndustries, Inc. as of September 30, 2011 and its results of operations and cash flows for the year then ended, in conformity with accounting principlesgenerally accepted in the United States of America. J.H. COHN LLP New York, New YorkDecember 15, 2011 29 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Shareholders of Forward Industries, Inc.We have audited the accompanying consolidated balance sheet of Forward Industries, Inc. (the Company) as of September 30, 2010 and the relatedconsolidated statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe thatour audit provides a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ForwardIndustries, Inc. as of September 30, 2010 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principlesgenerally accepted in the United States of America. KAUFMAN, ROSSIN & CO., P.A. Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Miami, FloridaDecember 8, 2010 30 FORWARD INDUSTRIES, INC.CONSOLIDATED BALANCE SHEETSSEPTEMBER 30, 2011 AND 2010 September 30, September 30, 2011 2010Assets Current assets: Cash and cash equivalents...................................................................................$14,911,844 $18,471,520Accounts receivable, net ......................................................................................3,894,118 4,621,181Inventories...............................................................................................................1,045,219 1,036,386Prepaid expenses and other current assets.........................................................1,018,227 240,651Note receivable........................................................................................................1,000,000 -- Total current assets..........................................................................................21,869,408 24,369,738 Property and equipment, net.....................................................................................302,158 115,205Other assets.................................................................................................................88,716 46,032Total assets..................................................................................................................$22,260,282 $24,530,975 Liabilities and shareholders’ equity Current liabilities: Accounts payable.....................................................................................................$2,947,562 $2,439,273Accrued expenses and other current liabilities....................................................630,031 885,332Total current liabilities....................................................................................3,577,593 3,324,605 Commitments and contingencies............................................................................. Shareholders’ equity: Preferred stock, par value $0.01 per share; 4,000,000 shares authorized;no shares issued..........................................................................................-- --Common stock, par value $0.01 per share; 40,000,000 shares authorized,8,794,296 and 8,761,629 shares issued (including 706,410 held in treasury at both dates) ............................................................................... 87,943 87,616Capital in excess of par value.............................................................................16,845,673 16,469,142Treasury stock, 706,410 shares at cost ............................................................(1,260,057) (1,260,057)Retained earnings................................................................................................3,009,130 5,909,669Total shareholders' equity.........................................................................................18,682,689 21,206,370Total liabilities and shareholders’ equity..............................................................$22,260,282 $24,530,975 The accompanying notes are an integral part of the consolidated financial statements. 31FORWARD INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF OPERATIONS For the Fiscal Years Ended September 30, 2011 2010Net sales......................................................................................................................................$22,777,040 $18,996,827Cost of goods sold......................................................................................................................17,712,425 14,764,840Gross profit................................................................................................................................5,064,615 4,231,987 Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Operating expenses: Sales and marketing...........................................................................................................3,391,396 2,166,542General and administrative...............................................................................................4,688,236 3,636,309Total operating expenses......................................................................................... 8,079,632 5,802,851 Loss from operations...............................................................................................................(3,015,017) (1,570,864) Other income (expense): Interest income...................................................................................................................107,686 42,941Other expense, net.............................................................................................................(49,258) (32,868)Total other income....................................................................................................58,428 10,073 Loss before income tax (benefit) expense............................................................................ (2,956,589) (1,560,791)Income tax (benefit) expense..................................................................................................(56,050) 124,032Net loss .....................................................................................................................................$(2,900,539) $(1,684,823) Net loss per common and common equivalent share Basic...........................................................................................................................$(0.36) $(0.21)Diluted........................................................................................................................$(0.36) $(0.21) Weighted average number of common and common equivalent shares outstanding[ Basic...........................................................................................................................8,080,344 7,983,257Diluted.......................................................................................................................8,080,344 7,983,257 The accompanying notes are an integral part of the consolidated financial statements. 32 FORWARD INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYFOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2011 AND 2010 Common Stock Treasury Stock Total Number of SharesPar ValueAdditional Paid-in Capital Retained EarningsNumber of SharesAmountBalance at September 30, 2009$22,522,4398,643,598$86,436$16,101,568$7,594,492706,410$(1,260,057)Common stock issued upon exercise of stock options67,00059,03059066,410------Share-based compensation301,75459,001590301,164------Net loss(1,684,823)------(1,684,823)----Balance at September 30, 201021,206,3708,761,62987,61616,469,1425,909,669706,410(1,260,057) Share-based compensation376,85832,667327376,531------ Net loss(2,900,539)------(2,900,539)----Balance at September 30, 2011$18,682,6898,794,296$87,943$16,845,673$3,009,130706,410$(1,260,057) The accompanying notes are an integral part of the consolidated financial statements. 33 FORWARD INDUSTRIES, INC.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CONSOLIDATED STATEMENTS OF CASH FLOWS For the Fiscal Years Ended September 30, 2011 2010Operating activities: Net loss.............................................................................................................................$(2,900,539) $(1,684,823)Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation..................................................................................376,858 268,718Depreciation and amortization.............................................................................74,307 53,602Provision for obsolete inventory........................................................................11,525 29,796Bad debt expense...................................................................................................1,222 8,875Loss on disposal of property and equipment....................................................15,373 2,227Changes in operating assets and liabilities: Accounts receivable..............................................................................................725,841 (1,370,594)Inventories..............................................................................................................(20,358) (399,697)Prepaid expenses and other current assets........................................................(287,576) (11,713)Other assets.............................................................................................................(42,684) 13,500Accounts payable..................................................................................................508,289 615,182Accrued expenses and other current liabilities..................................................(255,301) 784,511Net cash used in operating activities...............................................................................(1,793,043) (1,690,416) Investing activities: Issuance of notes receivable............................................................................................ (1,490,000) -Purchases of property and equipment..........................................................................(276,633)KC(8,566)Net cash used in investing activities.................................................................................(1,766,633) (8,566) Financing activities: Proceeds from exercise of stock options.......................................................................-- 67,000Net cash provided by financing activities.........................................................................-- 67,000 Net decrease in cash and cash equivalents......................................................................(3,559,676) (1,631,982) Cash and cash equivalents at beginning of year.............................................................18,471,520 20,103,502 Cash and cash equivalents at end of year.........................................................................$14,911,844 $18,471,520 Supplemental Disclosures of Cash Flow Information: Cash paid during the Fiscal year for: Income Taxes..........................................................................................................$514 $--Supplemental Disclosures of Non-Cash Operating and Investing Activities: Conversion of note receivable to advanced royalties is reflected in Prepaid expenses and other current assets (refer to Note 11)....................................................................$490,000 $-- The accompanying notes are an integral part of the consolidated financial statements. 34FORWARD INDUSTRIES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 OVERVIEW Forward Industries, Inc. was incorporated under the laws of the State of New York and began operations in 1961 as a manufacturer of specialtypromotional items. The Company designs, markets, and distributes carry and protective solutions primarily for hand held electronic devices, including soft-sided carrying cases, bags, clips, hand straps, protective plates and skins, and other accessories for medical monitoring and diagnostic kits, bar codescanners, GPS and location devices, and cellular telephones. The Company also designs, markets, and distributes carry and protective solutions for otherconsumer products such as laptop computers, MP3 players, firearms, sporting, recreational, and aeronautical products. The Company’s principal customermarket is original equipment manufacturers, or “OEMs” (or the contract manufacturing firms of these OEM customers), of these products that either packageour products as accessories “in box” together with their product offerings or sell them through their retail distribution channels. OEM customers are located inEurope, the APAC Region, and the Americas.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We do not manufacture any of the products that we design, market, and distribute. We source substantially all products we market and distributefrom independent suppliers in China. Our suppliers custom manufacture our carrying solutions and related products to our order, based on our designs andknow-how, and to our customers’ specifications.NOTE 2 ACCOUNTING POLICIESAccounting EstimatesThe preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differfrom those estimates and assumptions.Basis of PresentationThe accompanying consolidated financial statements include the accounts of Forward Industries, Inc. ("Forward") and its wholly owned subsidiaries(Forward Industries (IN), Inc., Forward Industries (Switzerland) GmbH (“Forward Switzerland”), Forward Industries HK Ltd., Forward Asia PacificLimited, and Forward Ind. (UK), Ltd., together with Forward, the "Company"). All significant intercompany transactions and balances have been eliminatedin consolidation.35 NOTE 2 ACCOUNTING POLICIES (CONTINUED)Cash and Cash EquivalentsCash and cash equivalents consist primarily of cash on deposit, highly liquid money market accounts, short-term bonds, and certificates of depositwith original contractual maturities of three months or less, predominantly in US dollar denominated instruments. The Company minimizes its credit riskassociated with cash and cash equivalents by investing in high quality instruments and by periodically evaluating the credit quality of the primary financialinstitution issuers of such instruments. The Company holds cash and cash equivalents at major financial institutions in the United States, at which cashamounts may significantly exceed FDIC insured limits, and in Europe. At September 30, 2011, this amount was approximately $10.5 million. Historically,the Company has not experienced any losses due to such cash concentrations.Accounts ReceivableAccounts receivable consist of unsecured trade accounts with customers or their contract manufacturers. The Company performs periodic creditevaluations of its customers including an evaluation of days outstanding, payment history, recent payment trends, and perceived credit worthiness, andbelieves that adequate allowances for any uncollectible receivables are maintained. Credit terms to the majority of customers are generally net thirty (30) days tonet sixty (60) days; however, the Company extends to certain customers, particularly its largest, payment terms up to 90 days. The Company has nothistorically experienced significant credit or collection problems with its OEM customers or their contract manufacturers. At September 30, 2011 and 2010, theallowance for doubtful accounts was approximately $14,000 and $19,000, respectively.InventoriesInventories consist primarily of finished goods and are stated at the lower of cost (determined by the first-in, first-out method) or market. Based onmanagement’s estimates, an allowance is made to reduce excess, obsolete, or otherwise un-saleable inventories to net realizable value. The allowance isestablished through charges to cost of goods sold on the Company’s consolidated statements of operations. As reserved inventory is disposed of, the Companycharges off the associated allowance. In determining the adequacy of the allowance, management’s estimates are based upon several factors, includinganalyses of inventory levels, historical loss trends, sales history, and projections of future sales demand. The Company’s estimates of the allowance maychange from time to time based on management’s assessments, and such changes could be material. At September 30, 2011 the Company did not record anallowance for obsolete inventory. At September 30, 2010, the allowance for obsolete inventory was approximately and $28,000.Property and EquipmentProperty and equipment consist of furniture, fixtures and equipment, and leasehold improvements and are recorded at cost. Expenditures for majoradditions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property, plant andequipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is includedin the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line methodfor financial statement purposes. The estimated useful life for furniture, fixtures and equipment ranges from three to ten years. Amortization of leaseholdimprovements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. For thefiscal years ended September 30, 2011 and 2010, the Company recorded approximately $74,000 and $54,000 of depreciation and amortization expense,respectively. Depreciation and amortization for production related property, plant and equipment is included as a component of costs of goods sold in theaccompanying consolidated statements of operations. Depreciation and amortization for selling and general and administrative related property and equipment,is included as a component of operating expenses in the accompanying consolidated statements of operations.36Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 2 ACCOUNTING POLICIES (CONTINUED)Income TaxesThe Company accounts for its income taxes in accordance with accounting principles generally accepted in the United States of America, whichrequires, among other things, recognition of future tax benefits and liabilities measured at enacted rates attributable to temporary differences between financialstatement and income tax bases of assets and liabilities and to net tax operating loss carryforwards to the extent that realization of these benefits is more likelythan not. The Company periodically evaluates the realizability of its net deferred tax assets. See Note 8 to these Notes to Consolidated Financial Statements.The Company’s policy is to account for interest and penalties relating to income taxes, if any, in “income tax expense” in its consolidated statement ofoperations and include accrued interest and penalties within the “accrued liabilities” in its balance sheets, if applicable. For fiscal years presented in theaccompanying consolidated statements of operations no income tax related interest or penalties were assessed or recorded.Revenue RecognitionThe Company generally recognizes revenue from product sales to customers when: (1) title and risk of loss are transferred (in general, these conditionsoccur at either point of shipment or point of destination, depending on the terms of sale); (2) persuasive evidence of an arrangement exists; (3) have nocontinuing obligations to the customer; and (4) the collection of related accounts receivable is reasonably assured.Shipping and Handling CostsThe Company classifies shipping and handling costs (including inbound and outbound freight charges, purchasing and receiving costs, inspectioncosts, warehousing costs, internal transfer costs, and other costs associated with the Company’s Hong Kong distribution facility and network) as acomponent of cost of goods sold in the accompanying consolidated statements of operations.Advertising and Promotion CostsAdvertising and promotion costs, consisting primarily of samples, tradeshow costs, and website costs are expensed as incurred. Advertising andpromotion costs are included in sales and marketing expenses in the accompanying consolidated statements of operations and amounted to approximately$173,000 and $111,000 for the fiscal years ended September 30, 2011 and 2010, respectively. Foreign Currency TransactionsThe functional currency of the Company and its wholly owned foreign subsidiaries is the U.S. dollar. Foreign currency transactions may generatereceivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. Fluctuations in exchange rates between suchforeign currency and the functional currency increase or decrease the expected amount of functional currency cash flows upon settlement of the transaction.These increases or decreases in expected functional currency cash flows are foreign currency transaction gains or losses that are included in “other income(expense), net” in the accompanying consolidated statements of operations. The net loss from foreign currency transactions and translations wasapproximately $37,000 and $33,000 for the fiscal years ended September 30, 2011 and 2010, respectively.Comprehensive LossFor the fiscal years ended September 30, 2011 and 2010, the Company did not have any components of comprehensive loss other than net loss.Fair Value of Financial InstrumentsFor certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and other accruedliabilities, the carrying amount approximates fair value due to the short-term maturities of these instruments.37 NOTE 2 ACCOUNTING POLICIES (CONTINUED)Share-Based Payment ExpenseThe Company recognizes share-based equity compensation in its consolidated statements of operations at the grant-date fair value of stock options andother equity-based compensation. The determination of grant-date fair value is estimated using an option-pricing model, which includes variables such as theexpected volatility of the Company’s share price, the exercise behavior of its grantees, interest rates, and dividend yields. These variables are projected basedon the Company’s historical data, experience, and other factors. Changes in any of these variables could result in material increases to the valuation of optionsgranted in future periods and increases in the expense recognized for share-based payments. In the case of awards with multiple vesting periods, the Companyhas elected to use the graded vesting attribution method, which recognizes compensation cost on a straight-line basis over each separately vesting portion of theaward as if the award was, in-substance, multiple awards. Refer to Note 7 Share-Based Compensation.Recent Accounting PronouncementsIn May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements inU.S. GAAP and IFRSs,” which provides a consistent definition of fair value and ensures that the fair value measurement and disclosure requirements aresimilar between U.S. GAAP and International Financial Reporting Standards (IFRS). The guidance changes certain fair value measurement principles andexpands the disclosure requirements particularly for Level 3 fair value measurements. The guidance is effective for the Company beginning January 1, 2012Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.and is to be applied prospectively. The adoption of this guidance, which relates primarily to disclosure, is not expected to have a material impact on theCompany’s consolidated financial position, results of operations or cash flows.In June 2011, the Financial Accounting Standards Board (FASB) issued Comprehensive Income (Topic 220) – Presentation of Comprehensive Income(Accounting Standards Update (ASU) No. 2011-05), which updates the Codification to require the presentation of the components of net income, thecomponents of other comprehensive income (OCI) and total comprehensive income in either a single continuous statement of comprehensive income or in twoseparate, but consecutive statements of net income and comprehensive income. These updates do not affect the items reported in OCI or the guidance forreclassifying such items to net income. These updates to the Codification are effective for interim and annual periods beginning after December 15, 2011. TheCompany does not expect the implementation of this guidance to have a material impact on its consolidated financial statements.In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and DisclosureRequirements” (“ASU No. 2010-09”). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that thefinancial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through whichthe filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations.In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separatelydisclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately presentinformation regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, is effective for interim andannual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3fair value measures which are effective for fiscal years beginning after December 15, 2010. The adoption did not have an impact on the Company’s financialposition and results of operations.38 NOTE 2 ACCOUNTING POLICIES (CONTINUED)In October 2009, FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multipledeliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, thisstandard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to eachdeliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence orother third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit ofaccounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated sellingprice method and how those judgments affect the timing or amount of revenue recognition. This standard, which became effective on October 1, 2010 has nothad a material impact on the Company’s financial position and results of operations.In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-29, “BusinessCombinations (ASC Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.” The amendments in this ASU affect anypublic entity as defined by ASC Topic 805 that enters into business combinations that are material on an individual or aggregate basis. The amendments inthis ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity asthough the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting periodonly. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring proforma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effectiveprospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or afterDecember 15, 2010. Early adoption is permitted. This guidance will be effective for the Company in the first quarter of fiscal 2012. Accordingly, the effects ofthe Company’s adoption of this guidance will depend upon the extent and magnitude of business combinations the Company enters into after September 30,2011.NOTE 3 NOTES RECEIVABLEOn January 5, 2011, the Company entered into a loan agreement with Flash Ventures, Inc. (“Flash”), an unrelated party, to provide a credit facility ofup to $1,000,000, due December 1, 2011. Pursuant to the agreement Flash executed an unsecured, unsubordinated term note in favor of the Company, bearinginterest at 11% per annum on any unpaid principal, payable quarterly commencing March 31, 2011. On January 6, 2011 and January 19, 2011, Flashdrew $600,000 and $400,000, respectively, in funds under the note, leaving no further funding available. Effective December 1, 2011, the terms of the loanwere amended to, among other things, extend the maturity date to April 1, 2012. In connection with such amendment Flash made a principal payment of$250,000 on December 1, 2011. Refer to Note 15 - Subsequent Events. The Company recorded approximately $449,000 in sales to Flash under itscustomary terms of sale during the fiscal year ended September 30, 2011.NOTE 4 PROPERTY AND EQUIPMENTProperty and equipment and related accumulated depreciation and amortization are summarized in the table below: September 30, 2011 2010Furniture, fixtures and equipment................................................................... $940,819 $772,511Leasehold improvements.................................................................................. 188,492 159,948Property and equipment, cost.................................................................... 1,129,311 932,459Less accumulated depreciation and amortization......................................... (827,153) (817,254)Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Less accumulated depreciation and amortization......................................... (827,153) (817,254)Property and equipment, net...................................................................... $302,158 $115,205 39NOTE 5 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIESAccrued expenses and other current liabilities consist of the following: September 30, 2011 2010Accrued severance......................................................... $100,000 $229,167Accrued sales commission and bonuses.................... 216,183 224,772Accrued shareholder settlement costs........................ - 142,043Accrued wages and benefits......................................... 118,541 130,241Accrued taxes.................................................................. 19,152 90,997Accrued other.................................................................. 176,155 68,112Accrued expenses and other current liabilities.. $630,031 $885,332NOTE 6 SHAREHOLDERS’ EQUITYAnti-takeover ProvisionsThe Company is authorized to issue up to 4,000,000 shares of "blank check" preferred stock. The Board of Directors has the authority and discretion,without shareholder approval, to issue preferred stock in one or more series for any consideration it deems appropriate, and to fix the relative rights andpreferences thereof including their redemption, dividend and conversion rights.Stock RepurchaseIn September 2002 and January 2004, the Company’s Board of Directors authorized the repurchase of up to an aggregate of 486,200 shares ofoutstanding common stock. Under those authorizations, as of September 30, 2011, the Company had repurchased an aggregate of 172,603 shares at a cost ofapproximately $403,000, but none during the fiscal years ended September 30, 2011 and 2010.NOTE 7 SHARE BASED COMPENSATION2011 Long Term Incentive PlanIn March 2011 shareholders of the Company approved the 2011 Long Term Incentive Plan (the “2011 Plan”), which authorizes 850,000 shares ofcommon stock for grants of various types of equity awards to officers, directors, and employees. During the fiscal year ended September 30, 2011, theCompensation Committee of the Company’s Board of Directors (the “Compensation Committee”) approved awards of stock options to purchase an aggregateof 545,000 shares of common stock to certain of the Company’s current executive officers and certain employees (470,000 shares) and to current non-employeedirectors (75,000 shares). Of these awards, 95,000 shares were forfeited and reverted to, and are eligible for re-grant under, the 2011 Plan. As of September30, 2011, the total shares of common stock available for grants of equity awards under the 2011 Plan was 400,000. The prices at which equity awards may begranted and the exercise prices of stock options granted may not be less than the fair market value of the common stock as quoted at the close on the NasdaqStock Market on the grant date. The Compensation Committee administers the plan. Options generally expire ten years after the date of grant and vest one yearfrom the date of grant for non-employee directors, and, in the case of initial grants to officers and employees, vest over five years with 50%, 25% and 25%vesting on the third, fourth, and fifth anniversary of the grant date, respectively.40 NOTE 7 ACCOUNTING POLICIES (CONTINUED)2007 Equity Incentive PlanThe 2007 Equity Incentive Plan (the “2007 Plan”), which was approved by shareholders of the Company in May 2007, and, as amended, in February2010, authorizes an aggregate of 800,000 shares of common stock for grants of restricted common stock and stock options to officers, employees, and non-employee directors of the Company. During the fiscal year ended September 30, 2011, the Compensation Committee of the Company’s Board of Directors (the“Compensation Committee”) approved awards of stock options to purchase an aggregate of 380,000 shares of common stock to certain of the Company’scurrent executive officers and certain employees. Of these awards, 10,000 shares were forfeited and reverted to, and are eligible for re-grant under, the 2007Plan. As of September 30, 2011, the total shares of common stock available for grants of equity awards under the 2007 Plan was 26,366. The prices at whichrestricted common stock may be granted and the exercise price of stock options granted may not be less than the fair market value of the common stock asquoted at the close on the Nasdaq Stock Market on the grant date. The Compensation Committee administers the 2007 Plan. Options generally expire ten yearsafter the date of grant, and in the case of non-employee directors, vest on the first anniversary of the date of grant. In the case of officers and employees,options either vest in equal amounts over three to five years or vest over five years with 50%, 25% and 25% vesting on the third, fourth, and fifthanniversary of the grant date, respectively. Restricted stock grants generally vest in equal proportions over three years.In March 2011, the Compensation Committee modified an option grant of 200,000 shares to an executive in 2010 by adjusting the vesting schedule to beSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.consistent with options granted to other executives and employees of the Company during the fiscal year ended September 30, 2011. Accordingly, said optiongrant, which previously contained a vesting provision of 20% per year, has been modified to 50% in year 3, 25% in year 4 and 25% in year 5. Thismodification has no impact on total compensation recorded on these grants.1996 Stock Incentive PlanThe Company’s 1996 Stock Incentive Plan (the “1996 Plan”) expired in accordance with its terms in November 2006. The exercise price of incentiveoptions granted under the 1996 Plan to officers, employees, and non-employee directors of the Company was required by 1996 Plan provisions to be equal atleast to the fair market value of the common stock at the date of grant. In general, options under this plan expire ten years after the date of grant and generallyvest in equal proportions over three years. Unexercised options granted prior to 1996 Plan expiration remain outstanding until the earlier of exercise or optionexpiration. Under the 1996 Plan 30,000 fully vested common stock options are the only awards that remain outstanding and unexercised, all at exercise priceshigher than the fair market value of the common stock at September 30, 2011.Stock Option AwardsUnder the 2011 and 2007 Plans, the Compensation Committee has approved awards of stock options to purchase an aggregate of 1,197,500 shares ofcommon stock to the Company’s current and certain former non-employee directors, and to current and certain former Company officers. Of these awardsgrants covering 925,000 shares were made during the fiscal year ended September 30, 2011. As of September 30, 2011, awards covering 40,000 shares fromthe 2007 Plan and 95,000 shares from the 2011 Plan of common stock were forfeited, with such shares reverting to the respective plans and were eligible forgrant. The exercise prices of the awards granted was, in each case equal, to the closing market value of the Company’s common stock on the Nasdaq StockMarket on the various grant dates.The Company recognized approximately $382,000 and $141,000 of compensation expense for stock option awards in its consolidated statements ofoperations for the fiscal years ended September 30, 2011 and 2010, respectively. As of September 30, 2011, there was approximately $1,251,000 of totalunrecognized compensation cost related to 825,000 shares of unvested stock option awards granted under the 2007 and 2011 Plans, which is expected to berecognized over the remainder of the weighted average vesting period (extending to August 2016).41 NOTE 7 SHARE BASED COMPENSATION (CONTINUED)Stock Option Awards (Continued)The following table summarizes stock option activity under the 2011 Plan and 2007 Plan, as amended, during the fiscal year ended September 30,2011 (there was no activity during such period in respect of the 1996 Plan grants): Shares WeightedAverageExercise Price WeightedAverageRemainingContractual Term(Years) Aggregate Intrinsic ValueOutstanding at September 30, 2010187,500 $3.66 8.3 Granted..........................................................925,000 $3.44 8.4 Exercised.......................................................-- -- -- Forfeited........................................................(105,000) $3.73 -- Expired...........................................................-- -- -- Outstanding at September 30, 20111,007,500 $3.45 9.1 $31,275 Options vested and exercisable at September 30, 2011...........182,500 $3.71 7.3 $10,575Options expected to vest at September 30, 2011........................825,000 $3.39 9.5 $1,150 The table below provides additional information regarding stock option awards that were outstanding and exercisable at September 30, 2011. Stock Options Outstanding and ExercisableRange of Exercise PricesOutstanding at September 30, 2011 WeightedAverageRemaining Contractual Term (Years) Weighted Average Exercise Price$1.80 to $2.43112,500 7.8 $2.27$2.85 to $3.7940,000 8.2 $3.56Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.$6.0220,000 4.6 $6.02$15.9110,000 3.6 $15.91 182,500 7.3 $3.71 During the fiscal years ended September 30, 2011 and 2010, the Company granted 925,000 and 117,500 stock options at weighted average grant datefair values of $3.44 and $2.72, respectively.The fair value of each stock option on the date of grant was estimated using a Black-Scholes option-pricing formula applying the followingassumptions for each respective period: For the Fiscal Years Ended September 30, 2011 2010Expected term (in years)................................................................... 5.0 5.0Risk-free interest rate........................................................................ 0.1% to 2.2% 1.41% to 2.33%Expected volatility............................................................................. 62% to 72% 71% to 78%Expected dividend yield................................................................... 0% 0% 42 NOTE 7 SHARE BASED COMPENSATION (CONTINUED)Stock Option Awards (Continued)The expected term represents the period over which the stock option awards are expected to be outstanding. The Company based the risk-free interestrate used in its assumptions on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the award’sexpected term. The volatility factor used in the Company’s assumptions is based on the historical price of its common stock over the most recent periodcommensurate with the expected term of the award. The Company historically has not paid any dividends on its common stock and had no intention to do soon the date the share-based awards were granted. Accordingly, the Company used a dividend yield of zero in its assumptions. The Company estimates theexpected term, volatility and forfeitures of share-based awards based upon historical data.Restricted Stock AwardsUnder the 2007 Plan, the Compensation Committee of the Company’s Board of Directors approved and granted awards of 183,500 shares of restrictedstock, in the aggregate, to certain present and former executive officers and key employees. Of these awards 22,366 shares of restricted stock have beenforfeited and reverted to, and are eligible for re-grant under the 2007 Plan. No awards of restricted stock were made during the fiscal year ended September 30,2011. Vesting of the restricted stock is generally subject to a continued service condition with one-third of the awards vesting each year on the anniversary datethe awards were granted typically commencing on the first such anniversary date. The fair value of the awards granted was equal to the market value of theCompany’s common stock on the grant date. During the fiscal years ended September 30, 2011 and 2010, the Company recognized approximately ($5,000)and $128,000, respectively, of compensation in its consolidated statements of operations related to restricted stock awards.The following table summarizes restricted stock activity under the 2007 Plan during the fiscal year ended September 30, 2011. Shares WeightedAverage Grant DateFair ValueNon-vested balance at September 30, 2010........................................... 79,332 $2.07Changes during the period: Shares granted.................................................................................... -- --Shares forfeited................................................................................... (20,866) $2.09Shares vested...................................................................................... (32,667) $2.08Non-vested balance at September 30, 2011........................................... 25,799 $2.04 As of September 30, 2011, there was approximately $10,000 of total unrecognized compensation cost related to 25,799 shares of unvested restrictedstock awards (reflected in the table above) granted under the 2007 Plan. That cost is expected to be recognized over the remainder of the requisite service(vesting) period (approximately 15 months). The total fair value of shares vested during the fiscal years ended September 30, 2011 and 2010 wasapproximately $68,000 and $128,000, respectively.WarrantsAs of September 30, 2011, warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $1.75 were outstanding. Bytheir terms these warrants expire 90 days after a registration statement registering common stock (other than pursuant to employee benefit plans) is declaredSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.effective by the Securities and Exchange Commission. As of September 30, 2011, no such registration statement has been filed with the Securities andExchange Commission.43 NOTE 8 INCOME TAXESThe Company’s provision (benefit) for income taxes consists of the following United States and foreign components: For the Fiscal Years EndedSeptember 30, 2011 2010U.S. Federal and State Current....................................................................................................................... $(56,050) $124,032Deferred..................................................................................................................... (996,876) 210,910 Foreign: Current.......................................................................................................................-- --Deferred..................................................................................................................... 16,849 (13,431) Change in valuation allowance...................................................................................980,027 (197,479)(Benefit) provision for income taxes.........................................................................$(56,050) $124,032The benefit from income taxes of $56,050 recorded in the fiscal year ended September 30, 2011 is attributable to income taxes recoverable in respect ofFiscal 2010. As of September 30, 2011 and 2010, the Company has no unrecognized tax benefits related to U.S. Federal and state income tax matters.The deferred tax expense (benefit) is the change in the deferred tax assets and liabilities representing the tax consequences of changes in the amounts oftemporary differences, net operating loss carry forwards and changes in tax rates during the fiscal year. The Company’s deferred tax assets and liabilities arecomprised of the following: As of September 30, 2011 2010Deferred tax assets: Net operating losses...............................................................................................$1,185,053 $191,592Share-based compensation....................................................................................130,493 115,010Alternative minimum tax credit..............................................................................99,757 99,757Excess tax over book basis in inventory..............................................................28,717 48,056Depreciation.............................................................................................................Allowance for doubtful accounts.........................................................................9,1165,086 --6,872 1,458,222 461,287Valuation allowance................................................................................................(1,380,769) (400,741)Net deferred tax assets.........................................................................................77,453 60,546 Deferred tax liabilities: Prepaid insurance...................................................................................................(77,453) (56,239)Depreciation............................................................................................................-- (4,307) (77,453) (60,546) Total$-- $-- 44 NOTE 8 INCOME TAXES (CONTINUED)At September 30, 2011, the Company had available net operating loss carryforwards for U.S. Federal and state income tax purposes of approximately$2,811,000 and $3,756,000, respectively, expiring through 2031, resulting in deferred tax assets in respect of U.S. Federal and state income taxes ofapproximately $956,000 and $127,000, respectively. In addition, at September 30, 2011, the Company had available net operating loss carryforwards forforeign income tax purposes of approximately $1,160,000 resulting in a deferred tax asset of approximately $102,000, expiring through 2017. Total netSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.deferred tax assets, before valuation allowances, was $1,381,000 and $401,000 at September 30, 2011 and 2010, respectively. As of September 30, 2011, theundistributed earnings of the Company’s Swiss subsidiary of $821,000 are considered to be permanently invested; therefore, in accordance with generallyaccepted accounting principles in the U.S., no provision for U.S. Federal and state income taxes on those earnings has been provided.As of September 30, 2011, as part of its periodic evaluation of the necessity to maintain a valuation allowance against its deferred tax assets, and afterconsideration of all factors, both positive and negative (including, among others, projections of future taxable income, current year net operating losscarryforward utilization and the extent of the Company’s cumulative losses in recent years), the Company determined that, on a more likely than not basis, itwould not be able to use its remaining deferred tax assets (except in respect of United States income taxes in the event the Company elects to effect therepatriation of certain foreign source income of its Swiss subsidiary, which income is currently considered to be permanently invested and for which noUnited States tax liability has been accrued). Accordingly, the Company has determined to maintain a full valuation allowance against its deferred tax assets;as of September 30, 2011 and 2010, the valuation allowances were approximately $1,381,000 and $401,000, respectively. If the Company determines in afuture reporting period that it will be able to use some or all of its deferred tax assets, the adjustment to reduce or eliminate the valuation allowance wouldreduce its tax expense and increase after-tax income. Changes in deferred tax assets and valuation allowance are reflected in the “Income Taxes” line item of theCompany’s consolidated statements of operations.As of September 30, 2011 and 2010, the Company has not accrued any interest and penalties related to uncertain tax positions. It is the Company’spolicy to recognize interest and/or penalties, if any, related to income tax matters in income tax expense in the statement of operations. For the periods presentedin the accompanying statements of operations no income tax related interest or penalties were assessed or recorded. All fiscal years prior to the fiscal year endedSeptember 30, 2008 and 2005 are closed with regard to U.S. Federal and State examination, and Swiss federal taxes, respectively, except with respect to netoperating losses generated in prior fiscal years.The significant elements contributing to the difference between the United States Federal statutory tax rate and the Company’s effective tax rate are asfollows: For the Fiscal Years Ended September 30, 2011 2010Statutory U.S. Federal income tax rate.................................................................34.0% 34.0%State taxes, net of Federal benefit...................................................................1.9% 1.7%Permanent differences...................................................................................... (3.3%) (53.4%)Foreign tax rate differential..............................................................................1.8% (3.0%)Valuation allowance..........................................................................................(34.4%) (1.8%)Other....................................................................................................................2.0% 14.6%Effective tax rate 2.0% (7.9%) 45 NOTE 9 LOSS PER SHAREBasic per share data for each fiscal year presented is computed using the weighted-average number of shares of common stock outstanding during eachsuch period. Diluted per share data is computed using the weighted-average number of common and dilutive common-equivalent shares outstanding duringeach such period. Dilutive common-equivalent shares consist of shares that would be issued upon the exercise of stock options, stock rights and warrants,computed using the treasury stock method. Loss per share data for the Fiscal years ended September 30, 2011 and 2010, excludes 668,299 and 61,500,respectively, of outstanding common equivalent shares as inclusion of such shares would be anti-dilutive. Calculation of basic and diluted per share data forthe fiscal years ended September 30, 2011 and 2010 is as follows: For the Fiscal Years Ended September 30, 2011 2010Numerator: Net loss $(2,900,539) $(1,684,823)Denominator: Denominator for basic earnings per share - weighted average shares 8,080,344 7,983,257 Dilutive stock options and warrants - treasury stock method -- -- Dilutive unvested restricted stock -- -- Denominator for diluted earnings per share - weighted average shares 8,080,344 7,983,257Net income per common share: Basic ($0.36) ($0.21) Diluted ($0.36) ($0.21) Shares excluded from denominator used to calculate diluted earnings per share due to anti-dilution 668,299 61,500 NOTE 10 COMMITMENTS AND CONTINGENCIESSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Employment and AgreementsOn August 10, 2010, the Company’s Board of Directors appointed Brett M. Johnson as the Company’s President and Chief Executive Officer, on an“at-will” basis an annual salary of $250,000, pending his negotiation of a long-term employment agreement with the Compensation Committee of theCompany’s Board of Directors. Mr. Johnson is entitled to receive customary benefits including health, life and disability insurance, auto allowances andparticipation in the Company's 401(k) retirement plan.James O. McKenna serves as the Company’s Chief Financial Officer, Treasurer and Assistant Secretary pursuant to an Amended EmploymentAgreement, dated as of April 1, 2011 (the “Employment Agreement”), between the Company and Mr. McKenna. The Employment Agreement provides for anannual salary of $225,000 and Mr. McKenna will be eligible to earn bonus compensation based on achievement of targets set by the Board’s CompensationCommittee in respect of each fiscal year during the term. Under the Employment Agreement, Mr. McKenna is entitled to reimbursement of reasonable out-of-pocket costs incurred in relocation to the Los Angeles area, and payment of a housing allowance of $7,500 per month, to be phased out over time. The term ofthe Employment Agreement expires on December 31, 2012, with automatic renewal for successive terms of one year each. Pursuant to the EmploymentAgreement, Mr. McKenna is entitled to a payment equal to one year of his salary as severance in the event of his termination “without cause” and terminationfor “good reason” (as such terms are defined in the Employment Agreement). In addition, in case of termination for good reason or without cause, in eithercase within the first 36 months after relocation to the Los Angeles area, Mr. McKenna is entitled to reimbursement of reasonable out-of-pocket costs incurred inconnection with relocation of his primary residence back to Florida.46 NOTE 10 COMMITMENTS AND CONTINGENCIES (CONTINUED)Guarantee ObligationIn February 2010, Forward Switzerland and its European logistics provider (freight forwarding and customs agent) entered into a RepresentationAgreement whereby, among other things, the European logistics provider agreed to act as such subsidiary's Fiscal representative in The Netherlands for thepurpose of providing services in connection with any value added tax matters. As part of this agreement, which succeeds a substantially similar agreement(except as to the amount and term of the undertaking) between the parties that expired December 31, 2009, the subsidiary agreed to provide an undertaking (inthe form of a bank letter of guarantee) to the logistics provider with respect to any value added tax liability arising in The Netherlands that the logisticsprovider is required to pay to Dutch tax authorities on the subsidiary's behalf. As of February 1, 2010, such subsidiary entered into a guarantee agreementwith a Swiss bank relating to the repayment of any amount up to €75,000 (equal to approximately $102,000 as of September 30, 2011) paid by such bank tothe logistics provider in order to satisfy such undertaking pursuant to the bank letter of guarantee. The subsidiary would be required to perform under theguarantee agreement only in the event that: (i) a value added tax liability is imposed on the Company's sales in The Netherlands, (ii) the logistics providerasserts that it has been called upon in its capacity as surety by the Dutch Receiver of Taxes to pay such taxes, (iii) the subsidiary or the Company on itsbehalf fails or refuses to remit the amount of value added tax due to the logistics provider upon its demand, and (iv) the logistics provider makes a drawingunder the bank letter of guarantee. Under the Representation Agreement the subsidiary agreed that the letter of guarantee would remain available for drawing forthree years following the date that its relationship terminates with the logistics provider to satisfy any value added tax liability arising prior to expiration of theRepresentation Agreement but asserted by The Netherlands after expiration. The initial term of the bank letter of guarantee expired February 28, 2011, but wasrenewed for one year and may be renewed automatically for one-year periods until February 28, 2014, unless the subsidiary provides the Swiss bank withwritten notice of termination at least 60 days prior to the renewal date. It is the intent of the subsidiary and the logistics provider that the bank letter ofguarantee amount be adjusted annually. In consideration of the issuance of the letter of guarantee, the subsidiary has granted the Swiss bank a security intereston all of the subsidiary’s assets on deposit with, held by, or credited to the subsidiary’s accounts with, the Swiss bank (approximately $947,000 atSeptember 30, 2011). As of September 30, 2011, the Company had not incurred a liability in connection with this guarantee.Lease CommitmentsThe Company rents certain of its facilities under leases expiring at various dates through September 2016. Total rent expense for the years endedSeptember 30, 2011 and 2010, amounted to approximately $336,000 and $281,000, respectively. The following table summarizes the future minimum leasepayments required under these leases.Fiscal Year Ended September 30, 2011 Amount 2012............................................................................................................ $422,0002013............................................................................................................ 337,0002014............................................................................................................ 321,0002015............................................................................................................ 179,0002016............................................................................................................ 185,000Total lease commitments................................................................... $1,444,000 47 NOTE 11 BINDING MEMORANDUM OF UNDERSTANDINGOn August 30, 2011, the Company entered into a binding Memorandum of Understanding (“MOU”) with G-Form LLC (G-Form), a manufacturer ofSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.consumer and athletic products incorporating proprietary extreme protective technology. Under the MOU, the Company is granted the exclusive right to use G-Form’s protective technology in the Company’s designated territory, subject to meeting certain minimum annual sales levels (or at the Company’s option, themaking of royalty payments at corresponding levels) commencing with the twelve-month period after shipment of the first licensed product, with theminimum levels increasing in the subsequent second and third twelve-month periods. After the first twelve-month period, the Company may terminate theMOU by providing six months notice, provided that the Company has paid all royalties and other charges incurred. The Agreement may be terminated by G-Form if there is an uncorrected, material breach by the Company of the terms of The Agreement.As of September 30, 2011, the Company has paid G-Form a $490,000 non-refundable advance against the first year’s royalties to be offset bycancellation of the $490,000 of loans made by the Company to G-Form in its capacity as a prospective joint venture partner. The $490,000 of advancedroyalties is included in “Prepaid expenses and other current assets” on the Company’s balance sheet at September 30, 2011. As of September 30, 2011, therehave been no sales of G-Form product subject to royalty. The MOU is a binding agreement but the parties have agreed to use commercially reasonable efforts toreplace the MOU with a mutually agreeable long-form license agreement reflecting the terms of the MOU and other customary terms and conditions.NOTE 12 LEGAL PROCEEDINGSTargus Group International, Inc., et al. v., Forward Industries, Johnson, et al.On September 19, 2011, the Company, Brett Johnson (our President and Chief Executive Officer), and one of our employees were named in aComplaint filed in Orange County Superior Court by Targus Group International, Inc. and two of its affiliates. The Complaint alleged a claim for breach ofcontract against Mr. Johnson. The Complaint further alleged a "breach of fiduciary duty/duty of loyalty" against the employee, and it asserted claims againstMr. Johnson and the Company for allegedly aiding and abetting that breach. The Complaint also asserted a cause of action against all Defendants for unfaircompetition. An Amended Complaint was filed on October 11, 2011. In addition to the claims asserted the in the original Complaint, the Amended Complaintadded an additional Targus affiliate as a plaintiff and named an additional employee of the Company as a defendant. The Amended Complaint asserted aclaim against that employee for breach of contract and for "breach of fiduciary duty/duty of loyalty," and it added new claims against the Company and Mr.Johnson for allegedly inducing the breach of and interfering with that employee's contract and for allegedly aiding and abetting his breach of duty. The claimfor unfair competition in the Amended Complaint relies on these new allegations as well. All of the claims asserted in this action arise out of the decisions offormer employees of one or more of the plaintiffs to accept offers of employment with the Company. The amount of damages sought is not specified. TheCompany believes it has substantial defenses to these claims and intends to vigorously defend the action. The Company has not recorded a loss provision forthese complaints as of September 30, 2011.Other LitigationFrom time to time, the Company may become a party to other legal actions or proceedings in the ordinary course of its business. As of September 30,2011, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Companybelieves would be material to its business.NOTE 13 401(K) PLANThe Company maintains a 401(k) benefit plan allowing eligible United States-based employees to contribute a portion of their salary in an amount up tothe annual maximum amounts as set periodically by the Internal Revenue Service. In accordance with applicable Safe Harbor provisions, the Company haselected to match 100% on the first 6% of eligible contributions by its employees. The Company's matching contributions were approximately $69,000 and$57,000 for the years ended September 30, 2011 and 2010, respectively, and are reflected in the accompanying consolidated statements of operations. TheCompany's contributions vest immediately.48 NOTE 14 OPERATING SEGMENT INFORMATIONThe Company operates in a single segment: the supply of carry and protective solutions for portable electronic devices. This carrying-solution segmentincludes the design, marketing, and distribution of two primary product categories; 1) carry and protective solutions for blood glucose meters, and 2) carryand protective solutions for other products. The Company’s carrying solution segment operates in geographic regions that include primarily the APAC, theAmericas, and Europe. Geographic regions are determined based primarily on the location of the customer or its contract manufacturer.Revenues from External CustomersThe following table presents net sales by geographic region. (dollars in thousands) Year Ended September 30, 2011 2010Americas: United States.................................................................................... Other.................................................................................................. Total Americas................................................................................. $2,3104,0896,399 $2,4013,7906,191 APAC: Hong Kong....................................................................................... Other.................................................................................................. 8,3472,098 7,236983Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Total APAC...................................................................................... 10,4458,219Europe: Germany............................................................................................ Other.................................................................................................. Total Europe..................................................................................... 3,7122,221$5,933 2,5802,007$4,587Total net sales...........................................................................................$22,777 $18,997Long-Lived Assets (Net of Accumulated Depreciation and Amortization)Identifiable long-lived assets, consisting entirely of property, plant and equipment, by geographic region are as follows: (dollars in thousands) Year Ended September 30, 2011 2010APAC................................................................................................................. $54 $76Americas............................................................................................................235 39Europe................................................................................................................13 -Total long-lived assets (net).....................................................................$302 $115Supplier ConcentrationThe Company procures substantially all of its supply of products from independent suppliers in China. Primary suppliers are Chinese businessentities located in China. Depending on the product, the Company may require several different suppliers to furnish component parts or pieces. TheCompany purchased approximately 90% of its products from four such suppliers in the Fiscal year ended September 30, 2011, and 88% of its products fromfour Chinese suppliers in the Fiscal year ended September 30, 2010. One such supplier accounted for approximately 58% and 67% of the Company’s productpurchases in the Fiscal years ended September 30, 2011 and 2010, respectively.49 NOTE 14 OPERATING SEGMENT INFORMATION (CONTINUED)Major CustomersThe following customers or their affiliates or contract manufacturers accounted for more than ten percent of the Company’s net sales, by geographicregion. Fiscal Year Ended September 30, 2011 Americas Europe APAC TotalCompanyDiabetic Customer A................................3% 1% 80% 37%Diabetic Customer B.................................36% 21% 2% 16%Diabetic Customer C.................................0% 63% 0% 16%Other Customer A.....................................0% 13% 0% 3%Other Customer B......................................7% 12% 0% 8% Fiscal Year Ended September 30, 2010 Americas Europe APAC TotalCompanyDiabetic Customer A ..............................3% 1% 88% 39%Diabetic Customer B ...............................39% 24% 2% 19%Diabetic Customer C................................3% 56% 0% 15%Other Customer A....................................0% 13% 0% 3% Three customers (including their affiliates or contract manufacturers) accounted for approximately 72% of the Company's accounts receivable atSeptember 30, 2011. Three customers, including their affiliates or contract manufacturers, accounted for approximately 75% of the Company's accountsreceivable at September 30, 2010.NOTE 15 SUBSEQUENT EVENTSConsultancy AgreementOn November 1, 2011, the Company entered into an agreement with RGJR Capital Partners LLC (“RGJR”) to provide Robert Garrett, Jr. as aconsultant for a term of up to six months to assist management in implementation of its growth strategy pursuant to a letter agreement, effective as of October1, 2011, between the Company and RGJR (the “RGJR Agreement”). RGJR and Mr. Garrett will report to the Executive Committee of the Company’s Board ofDirectors. RGJR will receive a consulting fee of $30,000 per month and Mr. Garrett has been awarded options to purchase up to 160,000 shares of commonSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.stock of the Company at an exercise price of $2.05, the closing fair market value on November 3, 2011, the grant date. Such options have a three year termand vest in six equal installments beginning November 15, 2011 and then on the last day of each month commencing November 30, 2011 through March 31,2012, subject to RGJR’s and Mr. Garrett’s continued involvement with the Company.Amended Note ReceivableOn January 5, 2011, the Company entered into a loan agreement with Flash to provide a credit facility of up to $1,000,000, due December 1, 2011. Effective December 1, 2011, the loan’s maturity date was extended to April 1, 2012. In connection with such amendment Flash made a principal payment of$250,000 on December 1, 2011. 50 SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalfby the undersigned, hereunto duly authorized.Dated: December 15, 2011 FORWARD INDUSTRIES, INC. (Registrant) By: /s/ Brett M. Johnson Brett M. Johnson President and Chief Executive Officer(Principal Executive Officer) By: /s/James O. McKenna James O. McKenna Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) POWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally, FrankLaGrange Johnson and Owen P.J. King, or either of them as his or her true and lawful attorneys-in-fact and agents, with full power of substitution andresubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effectiveamendments) to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities andExchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act andthing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying andconfirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtuehereof.IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated.In accordance with the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated: December 15, 2011/s/Brett M. Johnson Brett M. Johnson President and Chief Executive Officer (Principal Executive Officer) December 15, 2011/s/James O. McKenna James O. McKenna Vice President and Chief Financial OfficerSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (Principal Financial Officer and Principal Accounting Officer) December 15, 2011/s/ Ciara Burnham Ciara Burnham Director 51 December 15, 2011/s/John Chiste John Chiste Director December 15, 2011/s/Fred Hamilton Fred Hamilton Director December 15, 2011/s/ Frank Johnson Frank LaGrange Johnson Chairman of the Board December 15, 2011/s/Stephen Key Stephen Key Director December 15, 2011/s/Owen King Owen P.J. King Director December 15, 2011/s/Louis Lipschitz Louis Lipschitz Director 52 Exhibit Index3. Articles of Incorporation and By-Laws 3(i) Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3 to the Company's Annual Report on Form 10-K,as filed with the Commission on December 8, 2010) 3(ii)Third Amended and Restated By-Laws of Forward Industries, Inc., as of August 10, 2010 (incorporated by reference to Exhibit 3 to theCompany's Annual Report on Form 10-K, as filed with the Commission on December 8, 2010).Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 4.Instruments Defining the Rights of Security Holders 4.1Shareholder Protection Rights Agreement, dated as of June 9, 2010, by and between Forward Industries, Inc. and American Stock Transfer& Trust Company LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filedwith the Commission on June 15, 2010) 4.2Amendment, dated as of August 10, 2010, to Shareholder Protection Rights Agreement, dated as of June 9, 2010, by and between ForwardIndustries, Inc. and American Stock Transfer & Trust Company LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to theCompany’s Current Report on Form 8-K, as filed with the Commission on August 16, 2010), which amendment terminated the RightAgreement 10. Material Contracts 10.1 1996 Stock Incentive Plan of Forward Industries, Inc. (incorporated by reference to Exhibit 4 to the Registration Statement onForm S-8 of the Company, as filed on April 25, 2003). 10.2 Forward Industries, Inc. 2007 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 4.1 to the RegistrationStatement on Form S-8 of the Company, Reg. File No. 333-165075, as filed with the Commission on February 25, 2010). 10.3 Settlement Agreement, dated as of August 10, 2010, by and among Forward Industries, Inc., LaGrange Capital Partners, L.P.,and certain Affiliates of LaGrange Capital Partners, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s CurrentReport on Form 8-K, as filed with the Commission on August 16, 2010). 10.4 Severance and Release Agreement, dated as of August 10, 2010, by and between Douglas W. Sabra and Forward Industries,Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the Commission onAugust 16, 2010). 10.5 Retention Agreement, dated as of August 10, 2010, between Forward Industries, Inc. and James O. McKenna, (incorporated byreference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, as filed with the Commission on August 16, 2010). 10.6 Amended Employment Agreement, dated as of April 1, 2011, between Forward Industries, Inc. and James O. McKenna,(incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q, as filed with the Commission onMay 11, 2011). 10.7 Letter Agreement, dated October 31, 2011, between Forward Industries, Inc. and RGJR Capital Partners LLC, (incorporated byreference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on November 7,2011). 10.8† Memorandum of Understanding, dated August 30, 2011, between Forward Industries, Inc. and G-Form LLC. 21.Subsidiaries of the Registrant 21.1 List of Subsidiaries of Forward Industries, Inc. 53 23. Consent of Independent Registered Public Accounting Firm 23.1 Consent of J.H. Cohn LLP 23.2Consent of Kaufman, Rossin & Co., P.A. 31. Certifications Pursuant to Rule 13a-14(a) (Section 302 of Sarbanes-Oxley) 31.1Certification of Brett M. JohnsonSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 31.2Certification of James O. McKenna 32. Certifications Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350 (Section 906 of Sarbanes-Oxley) 32.1Certifications of Brett M. Johnson and James O. McKenna (furnished herewith) † Portions have been omitted pursuant to request for confidential treatment and the omitted portions have been separately filed with the Commission. 54Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. MEMORANDUM OF UNDERSTANDINGThe following represent the agreed terms with respect to the licensingagreement (“The Agreement”) between G-Form LLC and Forward IncAugust 26, 2011 1. All G-form products that currently exist and all future products with the G-Form look will be sold under the G-Form branding.2. Forward branded products incorporating G-Form technology (hereinafter “The Technology”) will generally be distinguished by amore office-oriented look. They will include such things already being worked on and new products developed at Forward’sdirection and will continue to have a distinctly different look from the G-form branded products.3. Forward products incorporating The Technology will include mutually agreeable G-Form co-branding as previously envisioned(e.g., “Powered By G-Form”).4. Joint IP can be used by Forward in Forward branded products and may also be used by G-Form in G-Form branded products; thelooks need to be made distinct per the above general guidelines.5. G-Form will bear all costs on its IP. Forward and G-Form will share [*] in costs relating to joint P. Forward will bear all costs on itsown IP.6. Forward’s licensed territory to sell its products will be the following:a. The sale of Forward branded products including The Technology to any IT focused store in any country but specificallyexcluding sport related or lifestyle stores that lack IT focus.b. The sale of Forward branded products including The Technology to any B to B opportunities such as HP, Lenovo, and anycorporate opportunities that are not consumer market outlets however specifically excluding sales to military or throughmilitary channels.c. The sale of current G-Form branded electronic protection products to any IT focused store or B to B opportunity in anycountry until such time when Forward is able to launch its own Forward-branded product line. For such sale of G-Formbranded product prior to such launch, G-Form and Forward will split [*] the Contribution Margin (defined as Net Salesless all direct variable costs, including cost of goods sold, sales commissions, and delivery charges) of these G-Formbranded products sales and the royalty rate in bullet #10 will not apply to these sales. [*] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.1 d. After Forward launches its own Forward-branded product line, Forward may sell G-Form branded electronic protectionproducts to any B to B opportunity in any country, but the compensation for such sales will be by mutual agreement, on acase by case basis, and the royalty rate in bullet #10 will not apply.7. G-Form may sell its own branded products in any area, however any sales by G-Form into US IT focused retail stores (e.g.,Staples, Best Buy) shall be credited towards Forward’s royalty (i.e. G--Form Net Sales multiplied by [*] (Forward’s royalty ratein bullet #10 below)).8. Forward will have the exclusive right to use The Technology in Forward’s territory other than sport related or lifestyle storesthat lack IT focus. This includes the right to sell to sub-distributors, wholesalers and resellers that are part of Forward’sdistribution channel.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.9. Forward will not sell products incorporating any other extreme protection technology during the term of The Agreement withoutthe consent of G-Form. This includes things such as Zoombang and D30 or any other material known for extreme impactprotection. No other extreme impact protection technology can be noted or featured on Forward products during the term of TheAgreement. G-Form will also make available to Forward whatever relevant agreements and exclusives that G-Form currentlyhas or may obtain in the future (during the term of The Agreement) from Polyworks, Rogers Corporation or any other entity asthey pertain to the protection of electronic devices. Further, G-Form will represent and warranty to Forward that it has exclusiverights, access, and intellectual property associated with The Technology.10. Forward will pay to G-Form a royalty equal to [*] of the Net Sales price (defined as Gross Sales less; co-op advertising programsand other cash incentives, cash discounts, returns and warranties, and allowances for damages or missing goods) of any Forward-branded product sales incorporating The Technology. The first twelve-month royalty period shall commence when Forwardships its first licensed product (“Initial Ship Date”).11. Upon execution of this Memorandum of Understanding, Forward will pay an advance against royalties in the amount of $500,000,which shall be credited towards the first year’s royalty payments. Unless Forward makes payment in another form, uponexecution of this Memorandum of Understanding a credit by G-form of the $500,000 royalty advance will be taken against theoutstanding short term promissory notes currently in place between the companies totaling $490,000 and any royalty advancebalance due thereafter will be paid within 30 days. If Forward does not meet any year’s minimum sales level, it may supplementits royalty payments to reach required levels that would have been due at the sales level to maintain exclusivity. The followingare the minimum net wholesale levels that Forward needs to reach in order to maintain exclusivity and the G-Form license: [*] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 2 a. [*] during the first 12 months from Initial Ship Dateb. [*] during the second 12 months from Initial Ship Datec. [*] during the third 12 months from Initial Ship Date12. G-Form will supply parts containing The Technology to Forward at G-Form’s cost from Polyworks, Rogers Corporation or anyother G-Form supplier. Forward will pay G-Form’s invoices for these parts in 15 days from invoice date. G-Form will acquireForward’s parts on the same cost basis as it acquires its own.13. Forward will bear the costs for development of Forward brand products. Immediately upon execution of this Memorandum ofUnderstanding, Forward may draw on G-Form’s development services, and to the extent G-Form provides development, G-Form will charge on a project by project or hourly rate as agreed between the parties.14. Immediately upon execution of this Memorandum of Understanding, Forward may begin selling G-Form branded productsincorporating The Technology in accordance with section 6c.15. After the first year, The Agreement may be terminated at any time by Forward with six months notice and all royalties and otheroutstanding charges due paid. The Agreement may be terminated by G-Form if there is an uncorrected, material breach byForward of the terms of The Agreement. Following termination, there will be a wind-down period for Forward to dispose ofinventory, subject to an ongoing duty to pay royalties to G-Form.16. This Memorandum of Understanding is a binding agreement between the parties. Within 30 days of signing this Memorandum ofUnderstanding or sooner, G-Form and Forward will use commercially reasonable efforts to replace this Memorandum ofUnderstanding with a mutually agreeable license agreement that will include the above points and such other terms andprovisions as are generally necessary and appropriate for such an agreement.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. [*] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 3 Accepted by: /s/ Brett M. JohnsonSignature Brett M. Johnson CEO 8/30/2011Name/Forward/ Title/Date /s/ Daniel WynerSignature Daniel Wyner CEO 8/29/2011Name/G-Form/ Title/Date [*] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 4 Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 21.1 List of Subsidiaries of Forward Industries, Inc. 1. Forward Industries (IN), Inc., an Indiana Corporation;2. Forward Industries HK Limited, a Hong Kong Limited Company;3. Forward Industries (Switzerland) GmbH, a Switzerland GmbH4. Forward Asia Pacific Limited, a Hong Kong Limited Company5. Forward Ind. (UK) Limited, Limited Company of England and WalesAll subsidiaries are wholly-owned by Forward Industries, Inc. Each does business under its name as set forth above.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 23.1 Consent of Independent Registered Public Accounting FirmWe hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Registration File Nos. 333-104743, 333-144442, and333-165075) of Forward Industries, Inc., of our report on our audit of the financial statements of Forward Industries, Inc. as of and for the yearended September 30, 2011 dated December 15, 2011, which appears in the annual report on Form 10-K of Forward Industries, Inc. for the yearended September 30, 2011. /s/ J.H. Cohn LLPCertified Public Accountants December 15, 2011New York, New YorkSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 23.2 Consent of Independent Registered Public Accounting FirmWe hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Registration File Nos. 333-104743, 333-144442, and 333-165075) of Forward Industries, Inc., of our report dated December 15, 2011, which appears in the annual report on Form 10-K of Forward Industries, Inc.for the year ended September 30, 2011. /s/ Kaufman, Rossin & Co., P.A.Certified Public Accountants December 15, 2011Miami, FloridaSource: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 31.1CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT I, Brett M. Johnson, certify that:1.I have reviewed this annual report on Form 10‑K for the fiscal year ended September 30, 2011, of Forward Industries, Inc. (“registrant”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and we have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: December 15, 2011 /s/ Brett M. JohnsonBrett M. JohnsonPresident and Chief Executive Officer(Principal Executive Officer) Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 31.2CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACTI, James O. McKenna, certify that:1.I have reviewed this annual report on Form 10‑K for the fiscal year ended September 30, 2011, of Forward Industries, Inc. (“registrant”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and we have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: December 15, 2011 /s/James O. McKennaJames O. McKennaChief Financial Officer(Principal Financial and Accounting Officer) Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 32.1CERTIFICATIONS OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Brett M. Johnson, Chief Executive Officer of Forward Industries, Inc. (”Forward”), and James O. McKenna, Chief Financial Officer of Forward, do eachcertify pursuant to 18 U.S.C. §1350 that, to the best of their knowledge:1. Forward’s annual report on Form 10-K for the fiscal year ended September 30, 2011 (the “Report”) fully complies with the requirements of Section 13(a)or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Forward. IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 15th day of December 2011. /s/ BRETT M. JOHNSONBrett M. JohnsonPresident and Chief Executive Officer(Principal Executive Officer) /s/ JAMES O. MCKENNAJames O. McKennaChief Financial Officer(Principal Financial and Accounting Officer)Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: FORWARD INDUSTRIES INC, 10-K, December 15, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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